LINDE HKO LTD v. LAI YUK KEI AND OTHERS

HCA 2371/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2371 OF 2014

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DECISION
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1.  This was an application by Linde HKO Ltd (“the plaintiff”) by summons dated 2 April 2015 for an order that final judgment be entered against the 3^rd defendant in respect of its claim for conversion.

BACKGROUND FACTS

2.  The plaintiff is a manufacturer and distributor of compressed gases in Hong Kong.  It supplies its gases in its own gas cylinders (“HKO cylinders”).  In its ordinary course of business it would only deal with end users and authorised dealers who have agreed in writing to abide by the plaintiff’s standard terms set out in its conditions of sale (“the conditions”).

3.  The conditions stipulate, inter alia, that HKO cylinders are the property of the plaintiff, that they are supplied for the customers’ use in Hong Kong and must be returned to the plaintiff upon termination of the contract in good condition at the customer’s expense (clause 19.2), that the customer shall not refill or allow the refilling of the cylinders other than by the plaintiff or allow the same to be used otherwise than for storage, transport or use of gas supplied by the plaintiff (clause 22.2) and that upon any breach of the conditions the HKO cylinders become immediately returnable to the plaintiff ( 22.7(iii)).

4.  The HKO cylinders have several distinctive features including a trapezoid label bearing the plaintiff’s trademarks, its name and address and are specifically designed valve engraved with the characters “HKO” fixed at the mouth of the cylinders.

5.  There were three defendants to the underlying action commenced on 20 November 2014.  The 2^nd defendant Alma Welding Equipment Company Ltd carries on the business of, inter alia, refilling and selling industrial gases in Hong Kong.  The 1^st defendant is a director and shareholder of the 2^nd defendant. 

6.  On 20 November 2014, the plaintiff obtained an ex parte injunction (continued on 28 November 2014 until further order) against all three defendants, inter alia, for delivery up of all HKO cylinders in their possession and/or control as well as all HKO cylinders which will come into their possession and/or control. 

7.  On the same day the plaintiff issued a writ against all three defendants for conversion and infringement of trademarks.

8.  The application for the injunction was based on reports of surveillance agents retained by the plaintiff.  Gas cylinders including HKO cylinders were seen at a freight yard in Lau Fau Shan (“the LFS yard”) and goods vehicles were seen transporting such cylinders in and out of the LFS yard.  Cylinders including HKO cylinders were seen being distributed to end users in exchange for other cylinders.

9.  Upon execution of the injunction on 22 November 2014 at the LFS yard, the plaintiff recovered 243 HKO cylinders.  On 29 November 2014, a further 186 HKO cylinders were delivered to the plaintiff by the defendants at the LFS yard.

10.  The 1^st defendant’s evidence was to the effect that all gas cylinders used in the business operations of the 2^nd defendant were either purchased from the second hand market or supplied by its customers.

11.  The 3^rd defendant is the owner of a trailer and of two storage containers in which some of the recovered HKO cylinders were found on 22 November 2014 but makes no claim to ownership of HKO cylinders.  The 2^nd defendant is one of the customers of the 3^rd defendant. 

12.  The 3^rd defendant’s business or trade is the provision of transportation services.  The 2^nd defendant used his services.  The 2^nd defendant would deliver empty gas cylinders to the 3^rd defendant at the LFS yard for the 3^rd defendant to transport the empty gas cylinders to the PRC to be refilled by a named entity there and to re‑transport the filled cylinders back to the LFS yard.  They would then be collected by the 2^nd defendant. 

13.  In connection with its transportation services, the 3^rd defendant would also provide temporary storage at the LFS yard.  The 3^rd defendant invoiced the 2^nd defendant after each trip and the fees paid depended on the size, number and weight of the cylinders involved.

14.  Upon a consent summons (made between the plaintiff and the 1^st and 2^nd defendants) being filed, a consent order was made on 1 April 2015 ordering that final judgment be entered for the plaintiff in its action against the 1^st and 2^nd defendants as particularised therein.

15.  On 2 April 2015, the present summons was taken out against the 3^rd defendant in respect of the plaintiff’s claim for conversion.

THE PLAINTIFF’S CASE

16.  Stated briefly, the plaintiff’s case is that the 3^rd defendant’s acts in conveying, storing and causing HKO cylinders to be refilled with gases by an unauthorised third party constituted dealings with the plaintiff’s goods that were inconsistent with or adverse to the plaintiff’s proprietary rights, rendering the 3^rd defendant liable for conversion.

17.  In response to a question from the court at an early stage of the proceedings, the plaintiff clarified the relief sought.  Mr Szeto who appeared for the plaintiff advised the court that the declaration as to ownership of HKO cylinders and the final order for delivery up of HKO cylinders only relate to and affect the 429 HKO cylinders recovered upon execution of the injunction and now in the plaintiff’s possession. 

18.  The plaintiff also seeks a permanent injunction to restrain the 3^rd defendant, his agents, servants, nominees, representatives or otherwise from in any way taking possession, using, filling, conveying, storing or otherwise dealing with HKO cylinders and for damages for conversion to be assessed.

THE DEFENCE

19.  The 3^rd defendant’s evidence is that he did not know and could not reasonably have known that some of the gas cylinders delivered to him by the 2^nd defendant did not belong to the 1^st and 2^nd defendants. It was said that the 1^st defendant had orally confirmed to him that the 1^st and 2^nd defendants owned the cylinders.  He described the HKO cylinders recovered as being “all rusted and tired” and that it was “not easily recognisable” that they were the property of the plaintiff.  The 3^rd defendant stressed that he had never assumed or asserted ownership over the HKO cylinders and had merely carried out the instructions of the 1^st and 2^nd defendants.  He had no business dealings whatsoever with the customers of the 1^st and 2^nd defendants.

Ignorance of the plaintiff’s rights

20.  At common law the tort of conversion is one of strict liability.  A defendant’s ignorance of the claimant’s right is generally irrelevant: see Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 at 970‑971 and Clerk & Lindsell on Torts, 21^st Edition, §17‑73.

21.  It is clear from the evidence that the 3^rd defendant transports the 2^nd defendant’s empty gas cylinders from the LFS yard to an entity in the PRC for refilling and transports the refilled cylinders back to the LFS yard and in connection with those services also provides temporary storage.  The issue that arises is whether the acts involved in his handling of the HKO cylinders amount to conversion. 

22.  One of the recognised exceptions to strict liability is what is described as “justifiable ministerial handling” but as noted in Clerk & Lindsell at §17‑77, it is not easy to find “a precise demarcation line between justifiable ministerial handling and conversion”.  A similar sentiment was echoed in Tat Seng Machine Movers Pte Ltd v Orix Leasing Singapore Ltd [2009] 4 SLR 1101 at §42.  The exception was said to be  in recognition of the need to ameliorate the hardship engendered by the remedy of conversion and to afford some protection for intermediaries who deal with the goods in good faith: see Tat Seng at §58. 

23.  In Fowler v Hollins (1872) LR 7 QB 616 at 630, Brett J opined that:

“… mere actual possession, if only with the intent to have custody of the goods, without reference to the question of property in them, is not a conversion; and … an asportation or actual removal and delivery of goods, if it be only a simple asportation, i.e., if it be done with intent only to be a carrier of the goods, without reference to the question of property in them, is equally no conversion.” (emphasis added)

I will return later to the meaning of the critical phrase “without reference to the question of property” which appears to be a (if not the) litmus test but it is noteworthy that the intent of the carrier is pertinent. 

24.  In the report of the same case on appeal from the Exchequer Chamber (where the judges had been equally divided in opinion) to the House of Lords (Hollins v Fowler (1874‑5) LR 7 HL 757) Blackburn J (at 766‑767) stated the following principle:

“I cannot find it anywhere distinctly laid down, but I submit to your Lordships that on principle, one who deals with goods at the request of the person who has actual custody of them, in the bona fide belief that the custodier is the true owner, or has the authority of the true owner, should be excused for what he does if the act is of such a nature as would be excused if done by the authority of the person in possession, if he was a finder of the goods, or intrusted with their custody”.

(In RH Willis and Son v British Car Auctions Ltd [1978] 1 WLR 438, Lord Denning (at 443C) held that the statement had been inferentially accepted by the House of Lords.)

25.  Blackburn J then provided a number of examples (at 767) including cases where protection could be accorded to intermediaries, for example, those involved in the storage of goods and in transporting goods:

“… a warehouseman with whom goods have been deposited is guilty of no conversion by keeping them, or restoring them to the person who deposited them with him, though that person turns out to have had no authority from the true owner … And the same principle would apply to the cases … of persons ‘acting in a subsidiary character, like that of a person who has the goods of a person employing him to carry them, or a caretaker, such as a wharfinger.’”

26.  As to what further element might be required to render the intermediary liable for conversion, the judgment of Tuckey LJ in Marcq v Christie Manson & Woods Ltd [2004] QB 286 sheds some light on the matter.  At §14, after referring to there being a long line of authority which shows that possession of goods by an agent on the instructions of their apparent owner for the purpose of carrying out what have been described as ministerial acts such as storage or carriage does not amount to conversion, he made the observation that:

“The possession in such cases is inconsistent with the rights of the true owner and is deliberate but does not encroach sufficiently on the owner’s title to the goods …” (emphasis added)

27.  Tuckey LJ’s rejection of the plaintiff’s argument in that case that the terms of the contract that entitled the auctioneer to extensive rights had intruded into the plaintiff’s right to immediate possession was in the same vein.  At §33, he said:

“… the duration of Christies’ possession is of itself of no consequence. Mere possession, for however long, is immaterial. It all depends on what else, if anything, Christie’s do and if that encroaches on the claimant’s title.” (emphasis added)

28.  Following that reasoning, it has been held that acts that amount to an encroachment on the true owner’s right of use and possession or which sufficiently interfere with the rights of the true owner would not be “ministerial acts”: Antariksa Logistics Pte Ltd v McTrans Cargo (S) Pte Ltd [2013] Lloyd’s LR 117 at §48.

29.  At this juncture, it would be convenient to take up the meaning of the phrase “without reference to the question of property” used by Brett J in Fowler v Hollins (see §23 above).  I read that phrase as meaning “without affecting the true owner’s rights in respect of that property”.  It would be in line with Tuckey LJ’s observations in the Marcq case. 

30.  Turning to the 3^rd defendant’s dealings with HKO cylinders, prima facie, the acts of taking possession from the 2^nd defendant, storing them and redelivering the same to the 2^nd defendant who had deposited them, viewed separately, might well be regarded as falling within the rubric of “ministerial acts”, each of those services being the normal and regular work expected of a haulage firm/carrier.  But what distinguishes the services rendered by the 3^rd defendant is the main purpose of the journeys back and forth from the LFS yard to the entity.  The journeys were undertaken for a specific purpose — to enable the entity to do something to the goods so carried.  Plainly, at the very least that was and must have been part of the 3^rd defendant’s intent.

31.  I do not consider that the excuse that the 3^rd defendant was merely complying with the instructions of the 2^nd defendant absolves him from liability.  In Fouldes v Willoughby (1841) 8 M&W 540 (a case concerning the taking and delivering of another’s goods) Lord Abinger observed (at 547):

“… it is necessary either that the party taking the goods should intend some use to be made of them, by himself or by those for whom he acts, or that, owing to his act, the goods are destroyed or consumed, to the prejudice of the lawful owner. …” (emphasis added)

The 3^rd defendant knew that the 2^nd defendant for whom he acted, intended some use to be made of goods so carried.  As to the intended user constituting conversion, see Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 considered in my decision handed down at the same time in parallel proceedings brought by the present plaintiff against other defendants: Linde HKO Ltd v Harvest Wise Gases (HK) Company Ltd & others, HCA 2373/2014, unreported, 21 September 2015 at §§43 et seq.

32.  The act of delivering empty cylinders including HKO cylinders to the entity for the purpose of having them refilled was intentional.  In my view, it clearly crosses the line.  It was a use of the property of the true owner (albeit on behalf of the 2^nd defendant) that encroached on or sufficiently interfered with the true owner’s right of use and possession.  At the very least the 3^rd defendant’s act enabled or facilitated the 2^nd defendant’s conversion of the plaintiff’s property as the conversion could not have taken place without the 3^rd defendant’s active participation. 

33.  Lord Ellenborough remarked in M’Combe v Davies (1805) 6 East 538 that:

“Certainly a man is guilty of a conversion who takes my property by assignment from another who has no authority to dispose of it; for what is that but assisting that other in carrying his wrongful act into effect.”

What the 3^rd defendant did in the present case was to assist the 2^nd defendant to accomplish its wrongful use of the plaintiff’s property.

34.  In any event, the 3^rd defendant has failed to discharge the burden of proof on him to show that his acts were purely ministerial and bona fide. That would require showing a prima facie case of having acted in good faith and that he did not know and “could not reasonably have known” that the HKO cylinders were the plaintiff’s property.

35.  That he has not done.  First, the markings on HKO cylinders show them to be the plaintiff’s property.  Apart from the 3^rd defendant’s assertion that they were “all rusted and tired”, the only other evidence in support is that of the 1^st defendant who, in §14 of his 1^st affirmation dated 5 December 2014 stated that:

“… some gas cylinders in the LFS Yard were rotten and marks, if any, on such gas cylinders were covered, marked, torn apart, etc during the circulation of the same to and from the 2^nd defendant and its customers. The same applies to most if not all of the HKO Cylinders that marks on the HKO Cylinders, if any, were blurry.”

36.  However, that evidence was given at the very outset in opposition to the injunction granted.  Several months later the 1^st and 2^nd defendants submitted to an order for final judgment.  In those circumstances, the 1^st defendant’s evidence is of little relevance.

37.  Significantly, the 3^rd defendant has not filed any evidence to substantiate his case that he “could not reasonably have known” that the HKO cylinders were the plaintiff's property.  For example, he has not sought to explain what steps he had taken in that regard.  Paragraph 4 of the 3^rd defendant’s 1^st affirmation dated 5 December 2014 throws some light on the 3^rd defendant’s approach.  It reads:

“In the business dealings with the 2^nd defendant, I pay attention to (i) the number of empty gas cylinders provided by the 2^nd defendant; and (ii) the nature of gases to be refilled for reason that the item (i) and (ii) affects the price in each deal. The marks on the gas cylinders, if any, are never my concern. In the circumstances, I am not aware of the marks of the HKO Cylinders of the Plaintiff in particular.” (emphasis added)

38.  That passage is telling: it shows that the 3^rd defendant could not care whose property the HKO cylinders were and in fact was turning a blind eye.  On any view, that cannot be a proper basis for the assertion that the 3^rd defendant “could not reasonably have known”.

CONCLUSION

39.  I have no hesitation in granting an order for final judgment in respect of the plaintiff’s claim for conversion against the 3^rd defendant as on the evidence no triable issue has been raised.  I will grant the relief sought as ‘amended’ at the hearing.

40.  At the conclusion of the hearing, counsel for the 3^rd defendant intimated that he wished to be heard on the issue of costs because of the late ‘amendment’ to the relief sought.  According, I order nisi that the costs of the summons be to the plaintiff.