SECRETARY FOR JUSTICE FOR AND ON BEHALF OF THE COMMISSIONER OF POLICE v. FIRST SUCCESS (HK) LTD AND ANOTHER

HCMP 1196/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1196 OF 2006

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J U D G M E N T

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1.  This is an interpleader proceeding taken out by the Applicant.  Pursuant to an order/direction of Master Hui given on 24^th August 2006, an issue in dispute between the Plaintiff and the Defendant is to be tried before me.

2.  The issue for trial is whether the Plaintiff or the Defendant is the owner of the subject goods in these proceedings as defined in paragraph 1 of the said Order of Master Hui dated 24 August 2006  (“the Goods”).

3.  To understand the case, it is necessary to set out some of the background.

Background

4.  The Plaintiff is and was at all material times carrying on the business of, inter alia, buying and selling dry sea cucumbers.  In the trading of sea cucumbers, one Mr. Chui Longhe (“Mr. Chui”) had introduced customers to buy sea cucumbers from the Plaintiff and in return, he received a sharing in the profit of the Plaintiff.  The Plaintiff claimed that Mr. Chui is a broker or middleman, and the Defendant said he is a partner of the Plaintiff.  The relationship between the Plaintiff and Mr. Chui is a matter to be determined, especially in relation to the deals involving the Defendant.

5.  On or about 17 August 2005, Mr. Chui introduced the Defendant to buy sea cucumbers from the Plaintiff.  One Mr. Ma Chun Ling Calvin (“Mr. Ma”), an employee of the Plaintiff represented the Plaintiff in the deal.  Mr. Ma recalled in his affirmation that the Defendant agreed to buy dried sea cucumbers totaling HK$1,880,000.  The Defendant paid US$134,961.43 to the Plaintiff in Hong Kong.  The Defendant could not bring the balance of price to Hong Kong and requested for settlement in China.  He also requested for release of the sea cucumber before full payment.

6.  Mr. Ma explained in Court that the Plaintiff refused to release the whole lot of the sea cucumbers, since the full purchase price had not been paid.  Negotiation went on for a few days, and finally, on or about 22 August 2005, it was agreed that the Defendant could take delivery of the goods and the balance of the price was to be paid on the same day by the Defendant to the Plaintiff in China.  In fact, Mr. Ma and Mr. Chui went to Guangzhou with the Defendant.  The Defendant met up with them in the hotel and all three went to a “地下錢莊” (remitting agent) to have the money remitted to the Plaintiff in Hong Kong.  The deal was successful.

7.  Evidence had been called on the details of this first transaction.  According to counsel’s closing submission, the negotiation of the terms of the first transaction was relevant to show that the Plaintiff reserved the title to the goods sold in the second deal before payment.   And it was relevant to some extent to show that the evidence of the Defendant is not reliable at all.  I shall deal with these points later.

The Second Deal between the Plaintiff and the Defendant

8.  The material transaction occurred on or about 24 November 2005, when Mr. Chui came to the Plaintiff’s office with the Defendant and his partner, Mr. Guo Tian Zhu (“Mr. Guo”) to buy more dried sea cucumbers from the Plaintiff.  900 kg of dry sea cucumbers at the price of HK$2,972,500 were selected by the Defendant and Mr. Guo (which is the subject goods of these proceedings – the Goods).  The Defendant requested for delivery of the Goods in Hong Kong and payment to be effected later in China. 

9.  Mr. Ma consulted one Mr. Toshiaki Fukuhara (whom Mr. Ma referred to as the boss of the Plaintiff) on phone and on obtaining the permission, he allowed the Defendant to take the Goods and to arrange payment in Guangzhou on the following day.  No contract was signed and there was no oral agreement on when the property of the Goods was to pass.  The Plaintiff arranged a van for the Defendant. The Goods were taken by the Defendant in the van to a warehouse nominated by the Defendant, Eagle Marine Products, for transportation of the Goods to China.  The purchase price had not been paid.  It is noted that only Mr. Chui went with the Defendant to send the Goods to the warehouse and the evidence is not clear what is the purpose of Mr. Chui going to the warehouse.

10.  As agreed, on 25 November 2005, Mr. Ma returned to Guangzhou with Mr. Chui and the Defendant by a private vehicle.  Mr. Guo returned to Guangzhou by train.  After meal, the Defendant left Mr. Ma and Mr. Chui to meet up with Mr. Guo to arrange for the cash payment.  Mr. Chui and Mr. Ma went to check the remittance rate of the remitting agent, and later on, Mr. Chui left Mr. Ma to meet the Defendant to check on the arrangement of cash payment.  Then, Mr. Chui informed Mr. Ma on the phone that since the remitting agent was closed in that evening, Mr. Chui assisted the Defendant to put the money into a bank and would remit the cash to the Plaintiff on the following day.  It is not clear if the money was put into the bank by Mr. Chui or the Defendant.

11.  There is a gap in the affirmation of Mr. Ma.  It appears that he had not met either Mr. Chui or the Defendant until later in the evening.  I turn to the evidence from the Defendant for this period.

12.  According to the affirmation of the Defendant, after lunch he met with Mr. Guo to get the money.  He said in his affirmation that when he came to Guangzhou on 22^nd November 2005, he brought with him a sum of RMB680,000 in cash.  Mr. Guo had brought with him RMB1,200,000 in cash.  And on 25^th November 2005, he withdrew RMB410,000 from his account.  On the same day Mr. Guo withdrew RMB198,000 from his account and borrowed RMB500,000 from his friend “陳奕拔”.  The withdrawal slips were produced in Court.

13.  The Defendant then went with Mr. Guo, carrying the money in a rucksack and a trolley type suitcase to the hotel room but found only Mr. Chui.  Mr. Chui said Mr. Ma was out to visit his sister.  He then paid the price of RMB2,972,500 in cash to Mr. Chui and left, without any receipt.  The Plaintiff questioned the Defendant on carrying such amount of cash in the city and had not asked for a receipt.  The Plaintiff disputed the Defendant’s evidence that he paid Mr. Chui as alleged or at all.  I shall consider this issue later.

14.  Later in the evening, the Defendant discussed with Mr. Guo and he felt not comfortable with the manner of payment.  Then he made an appointment with Mr. Chui to meet Mr. Chui and Mr. Ma at the hotel for writing a receipt.  The Defendant first met Mr. Chui in the hotel and was told that Mr. Ma was out for dinner.  Mr. Chui wrote a receipt.  Then Mr. Chui called Mr. Ma and found he had returned to his room.  So the Defendant and Mr. Chui went to see Mr. Ma in his room.

15.  It is not disputed, and recorded by Mr. Ma in his affirmation that, at about 11:00 p.m., Mr. Chui and the Defendant came to see Mr. Ma in his hotel.  The Defendant requested Mr. Ma to sign on a receipt prepared and signed by Mr. Chui, being “NZC-1” referred to in the affirmation of the Defendant dated 2 August 2006.  According to Mr. Ma’s affirmation, the Defendant requested him to sign on the receipt “to recognize that money had been paid to the [Plaintiff]”.  Mr. Ma refused initially, but when the Defendant insisted, he signed on the receipt.

16.  On the next day, Mr. Chui disappeared and no money had been remitted to the Plaintiff.  Mr. Chui did call Mr. Ma on his mobile phone to inform him that he had taken the money and was then in Russia.  Mr. Ma tried to report the matter to the Police in PRC, but not successful. 

17.  When Mr. Ma returned to Hong Kong on 27November 2005, neither he nor the Plaintiff reported the incident to the Police.  The Plaintiff only reported the matter to Hong Kong Police on 28 November 2005.  Then the money had not been paid and they suspected that they had been deceived.  The Police found the Goods were still kept by Eagle Marine and they seized the Goods. 

18.  After the investigation, Mr. Chui could not be found.  No charge had been laid against anybody.  As a result, the Police decided to return the Goods seized to the rightful owner.  There is more than one claimant to the Goods, the Plaintiff and the Defendant.

19.  To protect its position, the Applicant issued these interpleader proceedings.

Evidence

20.  An affirmation from one Wong Yick Lung, detective senior inspector, was filed in Court for the Applicant.  His affirmation with exhibits was admitted by agreement of the parties as evidence herein.  He set out the background and also exhibited the witness statement given by various witnesses in this investigation, including those of Mr. Ma, and the Defendant.

21.  Mr. Ma filed an affirmation herein which he adopted as his evidence in chief.  He was present in Court and was cross-examined by the Defendant.  Mr. Ma had given a statement to the Police (exhibited to the said affirmation of Wong Yick Lung) which he also adopted as his evidence.  The Plaintiff had filed an affirmation of the said Mr. Fukuhara, but at the hearing, counsel for the Plaintiff, Mr. Li, confirmed that they were not relying on the affirmation of Mr. Fukuhara.

22.  The Defendant had filed 2 affirmations and adopted as his evidence in chief.  He was subjected to cross-examination by the Plaintiff’s counsel.  Mr. Guo also gave an affirmation and was cross-examined.

23.  4 telephone conversations were taped by the Defendant and the audio record and transcripts were admitted by consent.

Preliminary Issues

24.  To come to a decision, I would have to look into the following matters –

(1) Whether the Plaintiff was the owner of the Goods before the sale on 24 November 2005;

(2) Is there a contract of sale for the Goods on 24November 2005;

(3) If there is a contract, who are the contracting parties to the contract of sale on 24 November 2005;

(4) Any agreement, express or implied, on when the property of the said goods were to pass;

(5) Has the price for the Goods been paid by the Defendant to Mr. Chui;

(6)        If the price had been paid to Mr. Chui, is the payment to Mr. Chui an effective payment to the Plaintiff.

The Ownership of the Goods before 24 November 2005

25.  There is no dispute that the Goods belong to the Plaintiff.  Mr. Fukuhara had stated in his affirmation that the Goods were purchased by the Plaintiff and he had exhibited the invoices.  Though the Plaintiff did not rely on this affirmation, given there is no dispute on the ownership, I could safely rule that the Plaintiff owned the goods on and before 24^th November 2005.

Any Contract of Sale on 24 November 2005

26.  Plaintiff’s counsel Mr. Li had been vague in his written opening on whether a contract of sale was concluded on 24 November 2005.  Terms such as sale and contract were avoided.  He called this a transaction.  I expressly asked Mr. Li what the nature of the transaction was.  Mr. Li accepted that there was a contract of sale.  I believe there must be a contract.  The Goods had been ascertained.  A price was fixed.  And the Goods were indeed delivered to the warehouse used by the Defendant.  I can see no other possibility than in holding that a contract of sale had been concluded.  The dispute could be on the terms of the contract.

The Contracting Parties

27.  Both agreed that the contract was between the Plaintiff and the Defendant.  I need not determine on this point.

Any Implied Terms on when the property of the Goods would pass

28.  As I found that the contract was a contract of sale between the Plaintiff and the Defendant, it is material to read sections 19 & 20 of the Sale of Goods Ordinance :-

Section 19

(1)  Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2)  For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.

Section 20

Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer-
Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.
Rule 2. …..

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.

29.  The Defendant’s case is very simple.  This is an unconditional sale.  The Goods had been delivered.  Notwithstanding that the price had not been paid, the property of the Goods passed to the Defendant; section 20 rule 1 should apply.  What cannot be disputed is that the Goods were specified and in a deliverable state.  It had been delivered by the Plaintiff to the Defendant on 24 November 2005 when the Goods were handed over to the van for transportation to Eagle Marine Product.

30.  Mr. Li first submitted that it was a conditional sale.  I am not told what the condition was.  In his final submission, he only argued that the contract was subject to an implied term that the property would not pass until the price was paid to the Plaintiff.

31.  Defendant’s counsel Mr. Lin questioned if there could be implied terms on when the property would pass, in light of the clear wordings of section 20.  But as section 19 recognizes the contractual intention of the parties to the contrary, it is possible for the parties to agree by expressed terms, or by necessary implication of the terms and circumstances when the contract was entered, that property was not intended to pass on delivery but on some other time.  Hence, the Plaintiff is entitled to argue that on the facts and circumstance of the case, there is an implied term that property only passes on payment.

32.  While this is a possible argument, the burden rests on the Plaintiff to satisfy me that the facts support such contention.  Mr. Li relied on the following points –

a.     The purchase price was not a small sum; and

b.     The practice for the Plaintiff was to release the goods after payment.

33.  I am grateful to Defendant’s counsel for taking me through the law on when an implied term should be inferred.  I need to refer to only one case, BP Refinery (Westernport) Pty Ltd v. Shire of Hastings (1978) 52 ALJR 20 at p.26E –

“…for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

34.  There is no evidence of any discussion on the parties on when the property was to pass.  While the purchase was close to HK$3,000,000, it was not a determining factor towards the suggestion that the parties intended the property to remain with the Plaintiff until the price was paid.  Indeed, a lot of trading was in the form of delivery before payment and the price could be even higher.  The price did not make it necessary to imply a term for deferring the transfer of property.

35.  Against this assertion of an implied term, it is not disputed that the Plaintiff had no idea as to where the goods were taken once they were loaded onto the van arranged for the Defendant.  While Mr. Chui went with the Defendant to Marine Products, there is no suggestion that he went with the Goods for the purpose to claim any interest.  I would be surprised that the Plaintiff did not care about the Goods if they intended the property to remain with them.

36.  Some references were made to other transactions introduced by Mr. Chui which were paid on or before delivery.  But it was the evidence of Mr. Ma that on some transaction, Mr. Chui was allowed to take the goods first and arrange payment.  There is no substance in this argument.

37.  Mr. Li also referred to the first transaction between the Plaintiff and the Defendant.  I do not agree with Mr. Li’s submission that the negotiation involved then before the Goods were handed over was pointing to the conclusion that the Plaintiff would reserve the right to the property.  It is more to suggest that the Plaintiff was prepared to deliver the goods and let the property pass before the price was fully paid.  So this point is against the Plaintiff’s case.

38.  On the balance, I am not convinced that there were any implied terms in the contract that the property of the Goods would pass only on payment of the price.  I am not convinced that the facts of the case showed a different intention on when the property should pass.  Then by the rule, it is very clear that when the Goods were boarded the van, the property passed to the Defendant and they are the owner of the Goods.  The Plaintiff’s right would be on the purchase price.

Payment to Mr. Chui

39.  The above finding is sufficient for me to conclude that the Defendant is the rightful owner of the Goods.  If I were wrong and there is the implied term as claimed, I would further consider if the Plaintiff had been paid the price.  The next question is, had the Defendant paid Mr. Chui the price.

40.  The Defendant and Mr. Guo gave evidence in Court on the payment of the price to Mr. Chui.  Mr. Li set out in his closing submission that their evidence is not reliable and I do not intend to repeat all the details.    In gist, Mr. Li questioned if the Defendant and Mr. Guo had brought such a large amount of cash from Beijing to Guangzhou.  And he also questioned if arrangement could be made for withdrawal of the large sum of money from the bank on 25 November 2005.

41.  If there is any dispute on the withdrawal, the Plaintiff should have dispute on the bank statement and bankbook produced in Court.  No objection had been raised.  Mr. Li never put to the witness that the contents of this bank document are inaccurate.  I do not see how he began to argue that the cash had not been withdrawn from the bank. 

42.  Mr. Li also submitted that to carry 29,725 pieces of RMB100 notes would require more than the rucksack and suit case as suggested in the evidence of the Defendant and Mr. Guo.  I have no evidence on what was the volume and weight of 29,725 pieces of banknote.  I am not persuaded that it is not possible. 

43.  Mr. Li also submitted that it is not believable that the Defendant and Mr. Guo would pay Mr. Chui without asking for a receipt at the time of payment.  The question is whether the evidence of the Defendant and Mr. Guo is reliable. 

44.  Having heard the evidence of the Defendant and Mr. Guo in box, and observing their response to question put, I found that both are reliable witnesses.  Their evidence had not been shaken by the cross examination of Mr. Li.  I believe their evidence that they had paid the money to Mr. Chui. 

The Position of Mr. Chui

45.  The Defendant in his affirmation claimed that Mr. Chui was an authorized representative or agent of the Plaintiff and had actual or apparent authority to act for and on behalf of the Plaintiff in the sale of the Goods, and he had the authority from the Plaintiff to accept payment of the purchase price. 

46.  According to the Defendant, he was introduced to Mr. Chui by a friend in August 2005.  On or about 16 August 2005, he went with Mr. Chui to the office of the Plaintiff to buy some dried sea cucumbers.  Mr. Chui told him that he co-operated with the Plaintiff, whereas he would find buyer for the sea cucumbers and the Plaintiff would supply the Goods.  They then shared the profits.  In the office, the Defendant was received by Mr. Ma.  Mr. Chui told the Defendant that both he and Mr. Ma were responsible for handling all affairs of the Plaintiff.  I note that these were information given by Mr. Chui. 

47.  The Defendant also relied on a number of telephone conversations between the Defendant and Mr. Ma. On 26^th November 2005 at around 12 noon, the Defendant had a telephone conversation with Mr. Ma.  The transcripts were agreed by the parties and admitted by consent.  The following conversation would be relevant –

寧：那，甚麽那個，你們公司說那個，款每次都是老崔收發嗎？

馬：對

寧：每次不管從那裡發款….都是那個崔龍赫….把款寄過來？

馬 : 對對對,每次都是從這邊匯過去香港

寧 : 一直是由他經手,是嗎？

馬 : 對對對

寧 : 就說那個,你這個,你這個,完了以後把貨發走,他這邊你們老闆,老闆同意他就是說委託他把這個款拿到廣州,到了廣州之後,你就跟他過來看看款匯到沒匯到,是嗎？

馬 :  對對對,就是這樣

寧 :  啊,那,那個,甚麼那個,那個老崔跟你們真的是合夥嗎？

馬 :  真的是合夥

48.  It was the submission of the Defendant that the conversation showed that Mr. Chui was a partner and/or had authority to receive payment.  In his statement to the Police, Mr. Ma explained why he said the above statement in the telephone call –

寧生問過呢次交易係咪阿崔同我負責，我話係，又問我同阿崔可唔可以收貨款，我話可以，因為一般都係由阿崔向佢嘅客人收錢，然後再找數比我老細。

49.  So it is clear from the statement of Mr. Ma that Mr. Chui collected the price from the customer.  It must follow that Mr. Chui had the authority from the Plaintiff to collect the price.  What he said in fact tally with the statement of Mr. Fukuhara given to the Police.  Page 19 of the bundle (page 2 of his statement) –

之後崔龍赫（以後簡稱崔先生）就邀請我合作做生意，只做海參生意，我同崔先生做生意大致有幾種方式﹕[4 modes of payment were set out]

第四種：由崔先生先响公司攞貨，然後過幾日先比錢，都係現金交易，但係攞貨前崔先生會事先通知我先，然後去公司攞貨

…….. (at page 4 of his statement)

問：崔龍赫嚟公司攞貨需唔需要提貨單同埋簽收收據？

答：唔需要

問：你同崔龍赫係乜嘢關係？

答：生意上拍擋，我負責提供貨品，而崔龍赫負責揾客。

50.  It is clear that Mr. Chui was a “拍擋” of the Plaintiff.  It is not conclusive that the Chinese term “拍擋” means a partner.  It could be a partner, or a joint venture co-operation.  From the evidence, it could not be shown that he had to share loss or the overhead of the Plaintiff.  And he was involved in one line of business of the Plaintiff only.  On the balance, I am not convinced that Mr. Chui was a true partner.  But he was clearly more than a middleman.  In case when he referred customers to the Plaintiff when the price was paid immediately, he could be regarded as a middleman who was paid a share in the profits for the referrals.  But he also had another form of dealing with the Plaintiff.

51.  From the evidence of Mr. Ma, and the said statement of Mr. Fukuhara, Mr. Chui was a person who had arrangement with the Plaintiff that he could take the stock and arrange payment later.  It was accepted by Mr. Ma in his evidence that Mr. Chui could collect the price from his customer.  Taking all into account, I found that Mr. Chui was an agent of the Plaintiff with authority to collect the price for the Plaintiff.

52.  Further, for the deal with the Defendant, if Mr. Chui did not have the authority to accept payment, the Plaintiff or its staff had to inform the buyer how to effect payment.  There is no evidence whatsoever on how the price was to be paid by the Defendant.   Even on the evidence of Mr. Ma, he appeared to have left the payment to be arranged by Mr. Chui with the Defendant.  In fact, on both deals, on the Plaintiff’s case, the price was paid by the Defendant to Mr. Chui in the presence of Mr. Ma.  That must be a holding out by the Plaintiff that Mr. Chui may receive the payment from the Defendant.

53.  Hence, I found that the price had been paid, the Defendant was the owner of the Goods even on the Plaintiff’s case.

Conclusion

54.  As I have come to the conclusion in favour of the Defendant, I conclude that the Defendant is the owner of the Goods.  The Goods should be delivered to the Defendant.  By the order of Master Hui, the Goods were released to joint custody of the solicitors for the Plaintiff and the Defendant until further order of the Court.  And there is the outstanding question of costs of storage.  I direct the Defendant to submit a draft order on the handover of the Goods and settlement of the storage within 7 days and to serve the same on the Plaintiff for agreement.  If no agreement could be reached on the term of order and/or the direction required following my ruling on the disputed issue, parties should come back to me for further directions with 30 minutes reserved.  

55.  I make an order nisi that the Defendant do have costs of the interpleader proceedings to become absolute within 14 days, such costs to be taxed if not agreed, and there be certificate for counsel for the hearing.  I assume that the Applicant would ask for costs and there be leave for them to make application, failing agreement with the Plaintiff and the Defendant.

56.  There is just one last matter I would like to mention.   I thank counsel for their assistance in the course of this trial. They discharged their tasks with diligence, careful preparation and courtesy.