SILVERCORD LTD. v. WELL KINGDOM ENTERPRISE LTD. AND OTHERS

DCDT 7912 & 7913/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT ACTION NO. 7912 & 7913 OF 2001

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DECISION

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INTRODUCTION

1. This is an interpleader summons where the various claimants claiming for the release of goods and chattels seized by the bailiff pursuant to two warrants of distress executed in the present proceedings. Originally there were 48 claimants, some of them had abandoned their claims at the previous hearing, leaving 36 claimants who still pursue their claims. They are claimants ( C3 to C6, C8,C16, C17, C19 to C46, C48).

BACKGROUND

2. The plaintiff is the landlord of two properties known as Shop Nos. 13-15 ,3/F, Silvercord, 30 Canton Road, Kowloon and Restaurant B, Northern Portion, 3/F, Silvercord, 30 Canton Road, Kowloon respectively; the defendant carried on business as a Chinese restaurant. By a tenancy agreement made in August 1999, the plaintiff let the two properties to the defendant at a monthly rental of HK$ 270,000.00 and payable in advance on first day of each calendar month. As from 1st October 2001 onwards, the defendant fell into arrears with its rent, the plaintiff in or about November 2001 commenced action in court to recover the rents. On 7th December 2001, the relevant warrants of distress were issued and on 11th January 2002, the warrants were executed by bailiff as a result of which goods and chattels at the properties were seized.

3. The claims made by the claimants can conveniently be divided into 3 groups, namely:

Group A- claims by business suppliers on basis of " sale or return" arrangement;

Group B- claim by 17th claimant (C17) for the computers on basis of oral licence;

Group C- claims by shareholders on basis of shareholders' loan agreement.

GROUP A' CLAIMS- BUSINESS SUPPLIERS

4. These claims are concerned with claimants (C3 to C6, C8, C16, C44 to C46 & C48) who were the suppliers of various kinds of food ingredients and cooking stuffs for the defendant to make dishes for sale, such as cooking oil, soya sauce, salt, rice, wheat, wine, shark fins etc. Their case is that owing to their long-term business relationship over the years had developed a normal practice or mutual understanding between the defendant and the suppliers that the individual suppliers would deliver a certain quantity of goods out of their own initiative without any orders from the defendant. Upon receipt of the goods, the suppliers would issue an invoice showing how much of goods had been sent to the defendant and payment for the goods depended solely on the actual quantity of goods used or consumed by the defendant. Therefore, those goods found on the defendant's restaurant were still unpaid for. Upon a short oral notice, the suppliers could simply take them back for resale. Such goods did not belong to the defendant at all unless and until they were consumed or used by the defendant.

5. I find this kind of business arrangement highly unreal and very hard to believe. It is difficult to imagine that the individual suppliers could know exactly when, how much and the types of food ingredients the defendant wanted at any particular time. Even given their long-term relationship, I don't think the suppliers could just do that. On the other hand, it makes more business efficiency if the defendant simply placed the orders itself and saved the other parties making a guess of what the defendant really needed. Even more unrealistic the arrangement would seem when one considers how the suppliers would have known when to take back excess goods delivered and why they would take up the troubles to collect the goods unsold. I believe these claimants were making up this so-called arrangement as an excuse with a view to getting back the unpaid goods they had sold to the defendant.

6. For the reason given, I conclude that the goods allegedly belonged to the supplier claimants were in fact goods sold to the defendant, and thus the property in the goods passed to the defendant, the goods no longer belonged to any of them; the only remedy left is for them to take action to recover for the purchase price of the goods.

GROUP B- C17 FOR COMPUTER

7. C17 was a director and shareholder of the defendant. It is submitted on behalf of C17 that the computer was bought by C17 and was placed at the defendant restaurant for his own personal use, but C17 would allow his colleagues to use it as well. I do not believe this. If the computer was bought for personal use, it would be unlikely that it was put for use at a person's place of work. Since other colleagues could have access to the computer as C17 claimed, it was more likely, I think, that the computer was being used for business purpose of the defendant restaurant. I believe this was the sole purpose for which the computer was put there. Though C17 produced an invoice to support that the computer was bought by him, for the reasons I given, I believe that the computer was bought on behalf of the defendant and for use in the course of its business. I am therefore not satisfied that the computer belonged to C17.

GROUP C- SHAREHOLDERS' CLAIM

8. These claims are concerned with claimants ( C19 to C43). It is submitted that pursuant to a shareholders' loan agreement made between the C19 to C43 claimants, a sum of HK$ 4.4 million was advanced to the defendant by way of an unsecured loan from the claimants concerned to enable the defendant to acquire all the fixtures, chattels and decorations from its predecessor, Golden Mile Seafood Restaurant, at the cost of HK$ 1.2 million. The claimants asserted that they were all parties to this loan agreement and the chattels, fixtures etc. in question belonged to them until the loan had been paid off by the defendant. As at the date of seizure, the defendant had not yet paid off the loan, they were therefore entitled to claim them back.

9. The claimants adduced a copy of the loan agreement in which all 25 shareholder claimants had signed it and also signed documents showing acknowledgement by the defendant of their individual contributions. However, I have grave doubt about the identity of parties to the loan agreement and their individual contributions. In the auditor's report prepared by a certified public accountant, Miss Margaret Wong, for the defendant company for the period ended 31/3/2000, it is stated under the heading " Report of Directors" that the following 12 claimants were directors during the relevant financial period, they were C19,C20,C21,C22,C23, C24,C26,C27,C28,C30,C35 and C36. And under the "Directors' Interest" which immediately follows, it is stated that " No director had a material interest in any contract with the company which was significant in relation to the company's business. At no time during the financial year was the company a party to any arrangement which enable any director of the company to acquire benefits by means of the shares in or debentures of the company or any other body corporate." Quite clearly, all these 12 claimants by such declaration had made it clear that they had not entered any contract with the defendant significant to the company's business. But on the other hand, the shareholders' loan agreement shows that they have such kind of important contract with the defendant company.

10. Further in the auditor's report, under the " Notes To The Accounts", it is stated at item 4 ( Shareholders' Loan) that the amount of loan is HK$ 2,705,000.00 which is much less than 4.4 million as alleged by the claimants concerned. From the list they submitted to court, each of the C19 to C43 had made various contributions and the aggregate amount came up to 4.4 million. Faced with such contradictory evidence, I am driven to the conclusion that each of the claimants C19 to C43 has not told the court the truth. I am not satisfied that those goods allegedly belonged to the shareholder claimants did actually belong to any of them.

LAWFUL DISTRESS

11. The bailiffs when exercising their power under Section 87 of the Landlord and Tenant ( Consolidation) Ordinance, they need only satisfy themselves that the movable goods or chattels seized are in the apparent possession of the person from whom the rent is claimed and are sufficient to cover the amount of rent and the costs of the distress, and that the goods seized are not within the exceptions as provided in Section 88 of the Ordinance.

12. The defendant operated a Chinese restaurant at the plaintiff's properties and all the goods as well as chattels seized were consistent with such user. I am satisfied that they were in the apparent possession of the defendant at time of seizure by the bailiffs , therefore, the seizure was lawful and none of the goods seized came within the exception category in Section 88.

GUARDING FEES

13. The bailiff informed the court that the guarding fees for storage of the seized goods are at the daily rate of HK$ 960.

CONCLUSION

14. . For the reasons given, the orders that I make are as follows:

(a)- The claims of 3rd to 6th claimants, 8th claimant, 16th claimant, 17th claimant, 19th to 46th claimants, 48th claimant be dismissed, and the bailiff do have leave to proceed with the sale of the seized goods in question;

(b)- Costs of guarding fees at daily rate of HK$ 960 be to the plaintiff as from 1/3/2002 until the date of handing down this decision and be borne by 3rd to 6th claimants, 8th claimant, 16th claimant, 17th claimant, 19th to 46th claimants, 48th claimant jointly and severally;

(c)-Costs of this application be to the plaintiff with certificate for counsel, to be taxed if not agreed. The costs be borne by 3rd to 6th claimants, 8th claimant, 16th claimant, 17th claimant, 19th to 46th claimants, 48th claimant jointly and severally. I shall make it an order nisi, and such order shall become absolute at the expiration of 14 days after the date of handing down this decision.