AMPSLEY CO LTD v. SHUEN ON FURNITURE LTD

DCDT 2354/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT NO 2354 OF 2012

------------------------

-------------------

DECISION

-------------------

Background and the Parties

1.  The plaintiff in these proceedings (who I shall refer to as the “the Landlord” in order not to confuse with “the Claimant”, to who I refer later) is seeking to recover rent outstanding from the defendant (“the Tenant”) with respect to premises at Shop No 3, Ground Floor, Yuen May Building, Nos 17, 17A, 21 and 21A Castle Peak Road, Yuen Long, New Territories, Hong Kong (“the premises”). 

2.  The premises are where the Tenant has a furniture shop.  However, in light of tougher economic times for some small businesses and these distraint proceedings, it appears that the Tenant’s Shop is not actively trading.  For now, no winding-up proceedings appear to have been commenced against the Tenant.

3.  The Bailiff’s New Territories Regional (Tsuen Wan) Office has executed a distraint process pursuant to a warrant dated 15 August 2012 (“the Warrant”) and served on the Landlord and the Tenant.  It is important to note that the Warrant is issued under Part III of the Landlord and Tenant (Consolidation) Ordinance (Cap 7) (“the Ordinance”).

4.  The Warrant relates to approximately seventy-five items of furniture at the premises.  On 4 September 2012, the Bailiff (Ms Wong Siu Hong – “the Bailiff’), in effect, took “walking possession” of many items of furniture at the premises.  Those items of furniture (among other things) are set out in an inventory prepared by the Bailiff on 4 September 2012 (“the Bailiff’s Inventory”).  

5.  The Claimant was personally served with a copy of the Warrant by one of the Bailiff’s Assistants on 14 September 2012 ie one week ago.  By a “Declaration” sworn in written Chinese by the Claimant on 7 September 2012 (“the Claimant’s Declaration”) the Claimant claims ownership of twenty-nine (or so) items of furniture listed in the Inventory (“the disputed items”).  In support of the Claimant’s Declaration, the Claimant claims ownership of the disputed items by reference to a contract claimed to have been made between the Claimant and the Tenant on 5 April 2012 (“the Consignment Agreement”).  The Consignment Agreement (in written Chinese) effectively purports (among other things) to allow the Tenant to hold items of furniture to the Claimant’s order; thereby, allowing the Tenant to attempt to sell them and account to the Claimant for the proceeds of sale.  Such an arrangement between a supplier and retailer is not uncommon.

6.  The disputed items are also shown highlighted in green on the copy of the Bailiff’s Inventory on the court file. Which of the items in the Bailiff’s Inventory are claimed by the Claimant is not in dispute at present; rather, of the disputed items, ownership is in issue.

The Hearing of the Bailiff’s Summons

7.  At the hearing before the court today, Mr To (representing the Landlord) invited the court to order a sale of the items listed in the Bailiff’s Inventory, including the disputed items (together with suitable costs orders against the Claimant).  The third affirmation of Chan Chi Keung Thomas, filed on the part of the Landlord on 20 September 2012 (yesterday), makes it clear that the Landlord believes that the Consignment Agreement is (to quote) “merely a sham”. 

8.  At today’s hearing neither the Tenant nor the Claimant was legally represented.  Mr Leung, representing the Tenant, appears to be (in effect) the owner of the business at the premises.  In the whole scheme of things the court did not consider it appropriate to proceed with the examination of the Tenant or, more particularly, the Claimant on oath.  Both men appeared unprepared and the Claimant (perhaps, understandably) appeared to be at times in some distress. 

9.  The court was of the view that the Claimant, if he is serious about progressing his claim to the disputed items, should be given more time to prepare his case.  Balancing the enforcement rights of a landlord (which are obviously important rights) with a claim to ownership of chattels on leased premises by a third party (and respect for personal property) is sometimes a difficult balance in the context of distraint proceedings; hence, the Bailiff’s Summons dated 11 September 2012 pursuant to s 95 of the Ordinance, in effect for interpleader relief and the court’s guidance (“the Bailiff’s Summons”).

Issues

10.  The three main issues before the court are:

(i)  When the Bailiff inspected the premises on 4 September 2012 were the disputed items in the “apparent possession” of the Tenant? [Section 87 of the Ordinance permits a bailiff to: “seize the movable property found in or upon the house or premises mentioned in the warrant, and in the apparent possession of the person from whom the rent is claimed (hereinafter called the debtor), or such part thereof as may, in the bailiff’s judgment, be sufficient to cover the amount of the rent, together with the costs of the distress” (italics added);

(ii)  Given the Claimant’s claim to the disputed items, who owns them?

(iii)  Should the goods in the Bailiff’s Inventory, including the disputed items, be ordered to be sold at a public auction?

11.  Given the Claimant’s lack of preparation (and at times apparent discomfort) the court declined to determine the issues conclusively today.  Rather directions were given for the further determination of the Claimant’s claim to the disputed items. 

12.  It is important to remember that neither the Claimant nor Mr Leung (representing the Tenant) were on oath at today’s hearing.  However, through the use of a good court interpreter, both were able to make clear submissions as to their respective positions for now. 

“Apparent Possession”

13.  Mr Leung (for the Tenant) submitted that when the disputed items were included in the Bailiff’s Inventory by the Bailiff and in his presence at the premises (on 4 September 2012) he had been confused about the Claimant’s alleged rights to the disputed items and (under some stress) had to rest or lost consciousness or both.  Mr Leung’s further submission (for the Tenant) is that on his “awakening”, he discovered the Bailiff had proceeded to complete the Bailiff’s Inventory.  For the record, this was flatly rejected by the Bailiff in her brief submissions.  The Bailiff submitted that on her visit to the premises on 4 September 2012 she had not been informed by Mr Leung at anytime about the disputed items.  Interestingly, the Bailiff submitted that she did recall Mr Leung mentioning some items at the premises did not belong to the Tenant, but never by reference to the disputed items.  The Bailiff was also adamant in her submissions that Mr Leung (for the Tenant) was asked several times whether any items of furniture at the premises belonged to anyone else. 

14.  The issue of apparent possession is, like many, fact sensitive and in this case to be determined at the adjourned hearing (with the benefit, if needs be, of evidence on oath). However, it is worth making one point here in this context and arising from today’s hearing.  That point is as follows.  The idea the Bailiff (and this female bailiff in particular) would have somehow carried on with her inventory while Mr Leung had partially “collapsed” or become ill or lost consciousness is difficult to accept.  

15.  As to the issue of “apparent possession” the test is quite settled in the case law and a nice summary of it is set out in “The Annotated Ordinances of Hong Kong” version of the Ordinance (Reissue – 2008: Michael Ramsden); see commentary at 87.06.  This court can do little better than quote from that commentary:

“The meaning of the words ‘apparent possession’ was considered in Hong Kong Land Investment and Agency Co Ltd v Athena Studio and Eastern Bazaar (1932-33) 26 HKLR 39 where it was held (at p 41) that their effect was ‘to make liable to distraint all goods on a tenant’s premises, which at the moment of executing the warrant, the bailiff reasonably supposes on the evidence of his own eyes to be in the possession of the tenant’.

The bailiff must take into account not only what he sees when he enters the premises but also what he is told and the knowledge that he has relating to the goods in question: see Yip Lam Shi v Chan Hung Hau (1936) 28 HKLR 26”.

16.  It is worth stressing the words: “….. at the moment of executing the warrant, the bailiff reasonably supposes on the evidence of his own eyes ….. and the knowledge that he has relating to the goods in question”.

17.  This court specifically declines to accept that (even in the confines of today’s hearing) the Bailiff proceeded to execute the Warrant while the Tenant’s representative (Mr. Leung) was somehow not in possession of his senses (or awake).  It is also worth pointing out that when the Bailiff inspected the premises to prepare the Bailiff’s Inventory on 4^th September 2012, she found there:

(i)  items of furniture;

(ii)  in a furniture shop; and

(iii)  items that, unless the Tenant can come up with a more cogent submission at the adjourned hearing, had the appearance (to “her eyes”) of being movable property in the Tenant’s apparent possession at the premises (see Xipho Development Co Ltd v CHM Holdings Co Ltd [1997] HKLRD 36, at para 19, applying the “Bailiff’s own eye test”, unless displaced by “other cogent evidence”).

18.  The Claimant’s position on the “apparent possession” issue is, of course, less relevant; he was not there at the time the Bailiff took the Bailiff’s Inventory, although it is clear from the Bailiff’s records that the Claimant was allowed to inspect the premises on 7 September 2012 (three days later and when he made his claim to the disputed items).

Ownership of the disputed items

19.  The less said about this issue for now the better.  This is a serious issue in dispute.  While the third affirmation of Chan Chi Keung Thomas on behalf of the Plaintiff suggests (at paragraph 18) that the Consignment Agreement is “merely a sham”, Mr To (for the Plaintiff),  with commendable fairness, did not push this point in his Written Submissions (filed on 20 September 2012) or at today’s hearing. 

20.  The fact is, in the time and context of today’s hearing and allowing for the state of readiness of the Claimant, the court is presented with the Claimant’s Declaration which it (the court) cannot say on its face is “merely a sham”.  There is also the Consignment Agreement to be considered on another day.  In his submissions, the Claimant did not withdraw from his position that the disputed items are his property.  The Claimant also argued in his submissions that “in his hands” the disputed items are worth approximately HK$149,000; as opposed to the greatly reduced value should they be sold at a public auction (which the Bailiff estimates may be in the region of approximately HK$33,000). 

21.  There is also the related point (not to be overlooked even in the robustness of certain of distraint proceedings) that Article 6 of Hong Kong’s Basic Law provides that:

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law”.

22.  The Claimant is a resident in Hong Kong and should be afforded the right to prove his title to the disputed items and in accordance with the law.  Section 96 of the Ordinance mandates that every claim made to property seized under a warrant issued under Part III of the Ordinance shall be verified by affidavit or affirmation.  The below mentioned Order and directions of the court seek to allow the Claimant to exercise that right.

23.  The Claimant submitted that he might find it difficult to establish his title and that he would have to consider the time and resources this would take him; if he is serious about asserting his rights then it should be noted that the burden is on him do so and to establish his ownership to the disputed items.  The warrant proceedings provided for in Part III of the Ordinance may be a statutory code for such proceedings, but useful guidance in this regard (i.e. burden of proof) can be found in the “Hong Kong Civil Procedure 2012” (General Editor - Martin Rogers), Vol 1, p 370, at O. 17/5/11 commentary.

24.  The third issue (whether to order a public sale) falls to be decided in light of the other two issues.

Position of the Mr Leung (of the Tenant) and the Claimant

25.  Both Mr Leung and the Claimant (in “open” proceedings) both submitted concerns that these distraint proceedings and the Warrant were not the best way to proceed in the matter of the Landlord’s outstanding rent and particularly as regards the amount in dispute.  Both men were made aware of the fact (by the court) that the Landlord is also as much a business as the Tenant and the Claimant’s business.  At today’s hearing the court found nothing wrong in the Landlord’s wish to recover its rent from the Tenant or in the distraint proceedings.  If the Claimant wishes to assert his rights he should do so in accordance with the court directions.  The consequences of his not doing so are clear to him, as is the court’s wide discretion as to costs.  Indeed, the distraint costs continue to mount and, together with the plaintiff’s legal costs, may well end-up exceeding the Landlord’s outstanding rent.  This is not an unknown phenomenon.  There is also the daily cost of the security guard of HK$860.  The Claimant suggested the Bailiff should be “discussing” matters with him and Mr Leung (of the Tenant); that was one of the better submissions made during today’s hearing. 

26.  In the meantime, the court was at pains to mention to the Tenant and the Claimant the point that the Warrant was a court process and had to be respected; any interference with that process would be a serious matter.  In fairness, neither Mr Leung (for the Tenant) nor the Claimant gave the impression of wishing to interfere.  Indeed, both gave the impression of being experienced businessmen of the sort that have traditionally underpinned Hong Kong’s economy; that both men are now experiencing hard times is unfortunate to hear and one can only genuinely hope things get better for them both.  However, their predicament is not the making of the Landlord or the Bailiff (who is only doing her job in difficult circumstances and in accordance with the law).  Both Mr Leung (for the Tenant) and the Claimant have time to seek legal advice (a point made to them by the court).

Court’s Order and Directions

27.  At the hearing the court informed all the parties that further directions would be given for the exchange of affirmation evidence and documents (but allowing the court some time to reflect on suitable time periods).  The time periods specifically make allowance for the forthcoming public holidays in early October 2012 and require the Claimant to substantiate his claim (if he means to), failing which there is the real prospect that at the next hearing the disputed items (among others) will be sold at public auction.  The court made the following Order (and understands that the plaintiff and Bailiff collected copies of the sealed Order on Monday, 24 September 2012, for service on the Tenant and the Claimant):

(i)  By no later than 4.00 p.m. on 9^th October 2012 the Claimant file at court and serve on the plaintiff’s solicitors (at their office address for service) and on the Senior Bailiff at the New Territories Regional (Tsuen Wan) Office the copy of an Affirmation (duly affirmed and dated) confirming details of:

(a)  the Claimant’s claim to ownership of one or more of the items (“the items”) set out in his Declaration dated 7 September 2012; and

(b)  the circumstances surrounding the execution of a written Agreement dated 5 April 2012 between the Claimant and the defendant and any arrangement for the “Consignment” of the items by the Claimant to the defendant and the “Holding” of the items by the defendant on behalf of the Claimant.

(ii)  The Claimant’s affirmation referred to in paragraph (i) above exhibit (attach) true and complete copies of all documents of any description (including, without limitation, all books and written records) in the Claimant’s possession relating to his claim to ownership of one or more of the items set out in his Declaration dated 7 September 2012.

(iii)  The plaintiff be at liberty to file at court and serve on the Claimant and on the Senior Bailiff at the New Territories Regional (Tsuen Wan) Office the copy of an Affirmation in Reply to the Claimant’s Affirmation at paragraph (i) above by no later than 4:00 pm on 12 October 2012.

(iv)  The hearing of the Bailiff’s Summons be adjourned and listed for further hearing and disposal on a date to be fixed before the Listing Officer.

(v)  A sealed copy of this Order be served on the Claimant and on the defendant by the Bailiff on or before 27 September 2012, together with a certified translated copy in written Chinese prepared by the plaintiff.

(vi)  The costs of these proceedings, including all the costs incidental to and occasioned by the Bailiff’s Summons and the costs of and occasioned by today’s hearing, be reserved.

(vii)  The parties be at liberty to apply for directions as regards the terms of this Order and generally. 

28.  As for the issue of costs in these proceedings to date, the court has reserved costs.  It has done is the expectation that the issue of costs will (note) be dealt with at the further hearing and without wishing to limit the court’s wide discretion in this regard (s 96 of the Ordinance and generally).

Representation: