WELL JOINT TRADING LTD v. FULL SUCCESS STEEL CO LTD AND OTHERS

HCA 1597/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1597 OF 2011

____________

_____________

D E C I S I O N

_____________

1.  This is an appeal from the decision of a master dismissing the application by summons of Dongguan Hongshun Metal & Materials Co Ltd (“Hongshun”) and Wang Fa Steel Co Ltd (“Wang Fa”). I shall refer to them collectively as the applicants. By their application they seek an order joining them as the 3^rd and 4^th defendants in the action respectively.

2.  The action is brought by the plaintiff to recover approximately 1,500 MT of deformed steel bars (also known as “debars”), 1,200 MT of which are currently in the custody of the 2^nd defendant in its godown in Yuen Long.

3.  VA Intertrading Aktiengesellschaft (“VAIT”), an Austrian commodity trader in steel and other products, sold 5,034.70 MT of debars to the plaintiff, as evidenced by VAIT’s invoice dated 5 April 2011, which referred to these debars as Lot No. JV 89. The debars were shipped from Turkey and arrived in the Hong Kong ports in early May 2011. 

4.  The plaintiff alleges that two of its directors at the time, namely Mr Thomas Chiu Chung Chiu (“Chiu”) and Mr Addie Fong Fu Chung (“Fong”), misappropriated the Lot No. JV 89 debars.  They caused parts of them (approximately 1,500 MT) to be sold purportedly by an entity they controlled called Well Joint Enterprises (China) Limited (“Well Joint China”) and delivered to the 1^st defendant (by being physically delivered to the 2^nd defendant’s godown on account for the 1^st defendant).  The 1^st defendant, as do the applicants, appear to be companies that engage in the business of trading in steel bars.

5.  On about 7 September 2011, approximately 300 MT of the debars were removed pursuant to the 1^st defendant’s order from the 2^nd defendant’s godown.  1,200 MT of the debars still remain with the 2^nd defendant to date.

6.  On 21 September 2011, the plaintiff issued the writ of summons in this action, claiming against the 1^st and 2^nd defendants for a declaration that the plaintiff is the rightful owner of the debars in question and for an order for their delivery up as well as damages for detinue.

7.  On 10 October 2011, the 2^nd defendant took out an interpleader summons pursuant to RHC O. 17 r. 1.  The affirmation it filed in support makes it clear that the 2^nd defendant claims no interest in the debars except for the cost of storing them and the costs of these proceedings.  For reasons that are not entirely clear to me, this interpleader summons was, together with the action brought against the 2^nd defendant, stayed by an order made by consent in January 2012.

8.  On 31 October 2011, the 1^st defendant filed its defence.  Its case is as follows:

(1) The 1^st defendant is not related to Chiu and Fong and knew nothing of the fraud perpetrated by them.  It had two prior successful transactions with Well Joint China.  By a contract dated 3 March 2011, it agreed to buy the debars in question from Well Joint China at a contract price of HK$8,609,400. 

(2) By a contract dated 17 March 2011, the 1^st defendant agreed to sell the debars to Hongshun at a contract price of US$1,142,700.  Hongshun paid an actual price of US$1,146,649.80.

(3) With a delivery order issued by Well Joint China, the 2^nd defendant, on behalf of the 1^st defendant, obtained delivery of the 1,500 MT of debars at the pier on 6 and 7 May 2011 and took them to the 2^nd defendant’s godown in Yuen Long.

(4) The 1^st defendant paid the actual price of HK$8,639,117.20 (which reflected the actual weight and market price of the debars) to Well Joint China in two tranches: (i) HK$3,000,000 by a cashier’s order dated 13 May 2011 and (ii) HK$5,639,277.20 by transfer from the 1^st defendant’s account with Bank of China to Well Joint China’s account with DBS Bank on 23 May 2011.  The 1^st defendant therefore contends that it is a purchaser of the debars from Well Joint China for value without notice of any defect in its title.

(5) Hongshun in turn paid the 1^st defendant by a letter of credit issued by the Bank of Dongguan dated 11 May 2011.  The letter of credit was negotiated on 13 May 2011.  A sum of US$1,146,649.80 was credited to the 1^st defendant’s account with Bank of China.  As a result, the 1^st defendant no longer claims any interest in the debars except for the costs of the proceedings.

(6) On 25 May 2011, the 1^st defendant entered into a contract to buy from Wang Fa 1,000 MT of steel bars with the delivery period being 25 May to 31 December 2011.  On 31 August 2011, the 1^st defendant contracted with Shui On Building Contractors Limited (“Shui On”) to supply to Shui On 1,000 MT of steel bars.  Pursuant to this contract, the 1^st defendant agreed to supply 300 MT of steel bars to Shui On in early September 2011, which Shui On collected from the 2^nd defendant’s godown.

9.  Hongshun is a company incorporated in Mainland China and Wang Fa is a company incorporated in Hong Kong.  They are associated companies in that they have common shareholders. After entering into the contract dated 17 March 2011 to buy the steel bars from the 1^st defendant (as referred to above), Hongshun entered into an agreement dated 20 April 2011 with Wang Fa to sell the steel bars to Wang Fa.

10.  The positions of the various parties with respect to the steel bars are, in short, as follows:

(1) The Plaintiff contends it is the rightful owner of the remaining 1,200 MT of the steel bars and claims that the 1^st defendant is liable to it in tort for having disposed of 300 MT of the steel bars in September 2011.

(2) The 1^st defendant contends that it obtained good title in respect of all 1,500 MT of the steel bars from Well Joint China and passed good title to Hongshun.  The 1^st defendant no longer claims any interest in the goods.

(3) The 2^nd defendant says it is a mere warehouseman and claims no interest in the goods other than for its fees and expenses.

(4) Hongshun contends that it obtained good title in respect of all 1,500 MT of the steel bars from the 1^st defendant and passed good title to its associated company, Wang Fa. 

(5) Wang Fa claims it is the owner of the remaining 1,200 MT of the steel bars, and entitled to recover possession thereof from the 2^nd defendant.

11.  On this appeal, on behalf of the applicants, Mr Paul Lam SC relies on RHC O. 15 r. 6(2)(b).  This sub-rule provides:

“(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application-

(a) …

(b) order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

12.  Given that the plaintiff claims a declaration of ownership of the steel bars and Wang Fa is the other person who asserts ownership of them, it seems to me Wang Fa’s presence is necessary to ensure that the question of ownership may be effectually and completely determined and adjudicated upon at trial. 

13.  Moreover, there exists between the 1^st defendant and Hongshun the issue as to whether the former acquired good title over the goods from Well Joint China and passed it to the latter, an issue which relates to or is connected with the declaration of ownership claimed by the plaintiff in this action.  In my opinion it would prima facie be just and convenient to determine this issue as between Hongshun and the 1^st defendant as well as between the plaintiff and the 1^st defendant.

14.  The 1^st defendant does not oppose the applicants’ application.  The plaintiff has raised a number of grounds for opposing the application.  First, Mr Nip on behalf of the plaintiff criticises the quality of the documentary evidence of payment of the price by Hongshun to the 1^st defendant, in that the letter of credit documentation exhibited was incomplete.  I do not think this is a ground for opposing the joinder.  This is not a trial of whether Hongshun did acquire title over the steel bars or not.  There is evidence from the deponents of the affirmations that Hongshun had paid the 1^st defendant for the steel bars and some documentary evidence of the letter of credit said to have been used to effect payment.  On the facts of this case this is sufficient to show that the averment of payment is not frivolous.  In any event the passing of property does not depend on payment but on intention of the parties under the contract.

15.  Secondly, Mr Nip says that since Hongshun had on its own case sold the goods to Wang Fa and is not claiming to be owner thereof, Hongshun should not be joined.  In my view, there exists an issue between Hongshun and the 1^st defendant as referred to above which is connected to the existing proceedings.  Also, Mr Nip seems to contend that even if Hongshun had acquired title, it might not have validly passed it to Wang Fa.  This seems to me a reason for allowing Hongshun to be joined as a party in addition to Wang Fa.  Further, Hongshun and Wang Fa are associated companies and likely to be represented by the same solicitors and counsel.  It seems to me that it will achieve little saving in time or costs simply to exclude Hongshun.

16.  Thirdly, it is said that it would be wrong for the applicants to be joined as defendants. It is said that they should have filed a writ themselves against the plaintiff and the 1^st defendant, and that the new action could be managed together with the existing action.  In my view, by suggesting that course, the plaintiff implicitly accepts (i) that ownership of the goods is an issue which ought to be determined in a set of proceedings to which both the plaintiff and the applicants are parties, and (ii) that such determination must proceed before or in tandem with the plaintiff’s claim in the existing action.  I do not see the attraction of requiring the applicants to bring a new claim which will lead to a multiplicity of proceedings.  So far as the question of ownership is concerned, this is a classic interpleader situation and indeed the 2^nd defendant has taken out an interpleader summons in the existing action, though for reasons unknown it was stayed by consent and not dealt with.

17.  In these circumstances, the proper course seems to me to be for the applicants to be joined in the existing action so that the question of ownership can be determined as between them, the plaintiff and the 1^st and 2^nd defendants. 

18.  In an interpleader, questions such as the burden of proof and liability to provide security for costs are not determined by who is labelled the plaintiff and the defendant. The plaintiff will not be prejudiced in those respects in the action as enlarged.

19.  Moreover, the court will have ample case management power to decide whether the other issues and remedies consequential upon the determination of ownership (such as the potential claim by Hongshun against the 1^st defendant if the latter is found to have failed to give good title in respect of the steel bars to the former) should be heard at the same time or deferred.

20.  Fourthly, Mr Nip says there was delay on the applicants’ part in bringing their application for joinder.  The applicants’ request to be joined was first made by letter to the plaintiff’s solicitors dated 26 October 2011.  The request was refused.  The applicants renewed their request by letter dated 21 February 2012.  It was again refused.  The applicants did not take out the present summons until 12 June 2012.  In my view the applicants could and should have acted more briskly.  But the delay is not so substantial that I should on that ground refuse the application.  As the action has not progressed beyond the close of pleadings, the plaintiff having apparently chosen to do nothing pending this application for joinder, there is little prejudice that will be caused by the joinder of the applicants.

21.  Finally, Mr Nip stresses that generally a plaintiff is entitled to choose the person against whom to proceed, and to leave out any person against whom he does not desire to proceed.  But the rules expressly empower the court to add defendants to an action against the wish of the plaintiff.  For the reasons I have given, this is an appropriate case in which to exercise that power.

22.  I shall therefore allow the appeal and grant an order joining Hongshun and Wang Fa as the 3^rd and 4^th defendants in these proceedings.  I shall hear counsel now on the question of costs and further directions for the conduct of the proceedings.