WONG CHOW HOI SZE ELSIE v. CROWN WINE CELLARS LTD

HCA 43/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 43 OF 2014

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D E C I S I O N

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1.  This is an application for leave to appeal against my decision of 20 July 2015, allowing the defendant’s appeal against the order of Master Chow granting summary judgment dated 10 June 2015.

The Law

2.  Under section 14AA of the High Court Ordinance, Cap 4, leave shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal shall be heard.  If the court is not convinced that there is a reasonable prospect of success, no leave should be granted.

3.  The converse, however, is not true, as stated by Cheung J (as he then was) in Ho Yuen Ki Winnie v Ho Hung Sun Stanley, HCA 391/2006, unreported, 25 May 2009, and affirmed by the Court of Appeal in HCMP 1009/2009 [2009] HKEC 1798, for even if the court is satisfied there is a reasonable prospect of success, it still retains a discretion as to whether to grant leave although the exercise of that discretion would be heavily influenced by the fact that the court considered there was a reasonable prospect of success in the first place.

The plaintiff’s grounds of application for leave

4.  The plaintiff has identified three grounds of appeal.

5.  The plaintiff maintains, under Ground 1, that I was wrong to find that it was open to a trial judge to conclude that the plaintiff was not the legal owner of the goods.  Mr Yuen submits that there is no lis as between the parties as to the ownership of the goods.  I do not accept that.  Under §2 of the defence, the defendant was unable to either admit or deny ownership by the plaintiff and as such the plaintiff was put to proof of the same.  The fact that the bankrupt purported to transfer his wine account to the plaintiff and she purported to own the same and was thereby, prima facie, a bailor of the goods, does not alter the fact that the evidence indicated that the contrary was highly likely.  There is a clear and obvious dispute upon the pleadings and evidence that the defendant does not accept the plaintiff is the true owner of the goods.  That dispute goes to the heart of the issue before the trial court.

6.  Whether the defendant is entitled to deny that ownership because, as the plaintiff suggests, it may only challenge the title of the plaintiff “upon the right and title and by the authority of the true owner” under one of the five exceptions to the rule against the plea of jus tertii (Palmer on Bailment, 3^rd Edn, §4‑035), is an issue for trial.  The evidence before me indicated that there was “clear evidence of authority from the rival claimant, empowering him to resist the bailor’s claim on his behalf” or at least require that claim to be put to proof and I took the view that such evidence should be tested in trial.

7.  Under Ground 2, the plaintiff argues that I was wrong to find that the lien had been triggered and that the defendant was entitled to payment at least up until October 2006.  Mr Yuen submits that the lien over the goods was not triggered in November 2006, even though the master found the same to be the case, and relies upon the failure by the defendant to charge the credit card of the plaintiff for the sums due.  That being the case, the plaintiff maintains that the defendant may not benefit from his own wrong.  As the defendant now submits and I agree, whether the plaintiff ever provided an original, signed direct debit authorization acceptable to her bankers; whether it remained extant at the material time and whether her offer to pay (without reference to any direct debit authorisation) was unconditional, are issues for trial as are the issues raised by the plaintiff as to whether the lien was lost because the defendant claimed for a wrong cause or amount.

8.  As to Ground 3, the plaintiff submits that I was wrong to find that there was a substantial factual and legal dispute as to who bore the responsibility for the delay after November 2006.  Mr Yuen submits there is no factual dispute as to who bears responsibility for the delay between November 2006 and late 2013 when the wine was finally sold and that, as a matter of law, the issue of delay does not give rise to any defence to the action.

9.  A period of 12 years passed during which time the defendant stored the goods.  Whether the defendant should have offered up the goods in November 2006 to the plaintiff as bailor and the rightful owner or was lawfully allowed to retain them after that period is a matter in dispute as the plaintiff maintains that she has no obligation to pay the post November 2006 storage charges at all.  Even if she was entitled to the goods in November 2006, whether she was entitled to them without payment for all outstanding sums, is also in dispute and, having refused to pay such, whether the defendant as entitled to fail to deliver up is yet another area of dispute.  All of this is canvassed in the pleadings.

10.  Lastly, Mr Yuen refers to the costs order made and submits that the usual order should be costs in the cause.  That might have been the case in the normal course of events but here the underlying claim has been based upon what can only be described as a fraudulent evasion of liability to the trustees in bankruptcy to account for this asset.  The order made was therefore indicative of the view I took as to the premature nature of the summary judgment application.

Conclusion

11.  Much of what was canvassed before me was a rehearsal of what had been submitted previously.  I do not accept that the jus tertii rule precludes any attack upon the underlying circumstances in which the bailor/bailee relationship came to exist come what may, as submitted by the plaintiff.  Even if I am wrong about that, this action is premised upon an illegal act.  The court will not lend itself to upholding such a claim based upon what may be found to be a fraud: Snell v Unity Finance Co Ltd [1964] 2 QB 203.

12.  Accordingly, even if I were to give leave to appeal on the first limb of ‘real prospect of success”, I am of the view that the Court of Appeal would be unlikely to re‑instate the summary judgment in the circumstances of this case and therefore I would exercise my discretion not to allow this leave application.

13.  Leave to appeal is not allowed.  Costs of this application be in the cause. 

Mr Ross M Y Yuen, instructed by Chau & Associates, for the plaintiff

Mr John Brewer, instructed by Ho, Wong & Wong, for the defendant

Mr Sunny Hathiramani of Tanner De Witt, for the third party

HCA 43/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 43 OF 2014

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D E C I S I O N

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Background

1.  This is an appeal from the decision of Master C Chow dated 10 June 2015, in which final judgment was entered against the defendant upon application for summary judgment under Order 14, rule 1, Order 14A and Order 18, rule 19 of the Rules of the High Court and the court’s inherent jurisdiction.

2.  This appeal by Crown Wine Cellars, as bailee of a quantity of fine wine (“the Wine”), seeks to persuade the court that it has a “real or bona fide defence” to its continuing failure to deliver up the Wine to the plaintiff, as bailor, when demanded to do so in 2006 and thereafter.

3.  The proceeds of sale of part of the Wine and the remainder of the Wine less charges, interest and costs were eventually delivered to the plaintiff by reason of a Consent Order made in Inter Pleader proceedings dated 11 November 2014. 

4.  In the application for summary judgment, the plaintiff sought and was granted, a declaration that the defendant “was and is not entitled to any lien over the wine stock” at the material time, which was between the 1 November 2006 and the date of sale of the majority of the Wine in 2013. As a consequence thereof, the defendant was ordered to pay the full proceeds of sale of that part of the wine that had been sold in 2013, plus interest thereon less the cost of storage of the Wine up to 31 October 2006 and the monies already paid to the plaintiff following the Consent Order under the Inter Pleader proceedings.

The factual background

5.  The plaintiff is the wife of Wong Tze Cheong Eric (“the husband”).  She maintains that in March 2004, she purchased the Wine from her husband at market value for the sum of HK$520,000, which was paid by way of cheque on 24 March 2004 to All Full Investment Limited. That company was operating La Ba Hotpot Restaurant, which was a business enterprise of her husband’s.

6.  In June 2004, her husband opened an account with the defendant.  In July 2005, the plaintiff opened her own account with the defendant and on 5 September 2005 her husband transferred his account to her.

7.  On 20 September 2005, the husband was served with a statutory demand which gave rise to a Bankruptcy Order.  The petition was presented on 1 November 2005.  He was made bankrupt on 22 February 2006 and discharged on 22 February 2014. 

8.  The third party in these proceedings are the trustees in bankruptcy of the estate of the plaintiff’s husband.  They were appointed on 12 April 2006.  They asserted title over the account held by the plaintiff with the defendant under sections 49 and 51 of the Bankruptcy Ordinance, Cap 6, on the basis that the transfer to the plaintiff of the Wine held to her husband’s account was either a transaction at under value, gift or payment without legitimate reason.

9.  The plaintiff maintains that in the latter part of 2006, she made repeated requests to the defendant to release the Wine to her, which the defendant refused to do. 

10.  On 1 November 2006, the defendant sought to exercise its lien over the Wine pursuant to paragraph 6 of the Conditions of Service owing to arrears of charges which had accrued up to 31 October 2006.  There followed a flurry of correspondence and various threats of legal proceedings by the plaintiff and the trustees in bankruptcy, which stretched into 2009.

11.  On 28 November 2012, the defendant notified both parties that arrears due as at 31 October 2012 were HK$857,023.99 and it therefore intended to exercise its lien over the Wine and sell it if neither party was prepared to settle the arrears and undertake to pay future charges.

12.  By October 2013, the Wine had been consigned to America by the defendant and 739 bottles had been sold with three bottles consumed as samples and 55 bottles remaining.  The net sale proceeds were HK$1,321,801.18.  The defendant then sought to set off all charges and legal expenses with a net figure of HK$ 221,656.59 remaining.

13.  On 3 January 2014, the plaintiff commenced proceedings against the defendant, which prompted the Inter Pleader proceedings taken out on 28 March 2004 and ultimately the Consent Order of 11 November 2004 referred to above.  The summons which is the subject of these proceedings, and forming the basis of the summary judgment, was taken out on the 17 December 2014.

Order 14

14.  This is an appeal from the master’s decision to grant summary judgment to the plaintiff.  As such, it is a hearing de novo.  An application for summary judgment under Order 14 or 14A is for clear cases in which there is no material factual dispute or where there is a definable legal issue as easily resolved summarily as in trial.  As Lindley LJ said in Codd v Delap (1905) 92 LT 510, unless it is obvious that the defence put forward by the defendant is “frivolous and practically moonshine”, Order 14 ought not to be applied.

15.  In Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225,Godfrey JA pointed out that unless the jurisdiction available under Order 14 was used in clear and obvious cases only, it is the plaintiff who is the ultimate loser as he will necessarily be kept out of his judgment longer than he would otherwise be if he had proceeded to trial.  That was the case in Man Earn and I fear that it is the case here.

16.  By their summons dated 17 December 2014, the plaintiff sought and obtained summary judgment in the following terms:

(1) Final judgment in this action against the defendant for the following relief as prayed in the Statement of Claim herein:

(i) A declaration that the defendant was and is not entitled to any lien on the wine stock.

(ii) Payment to the plaintiff of the net proceeds of HK$1,335,728.06 with interest thereon less the sum of HK$227,783.47 already aid to the plaintiff under HCMP 730/2014 and the sum of HK$70,608.78 being the storage charge as of 31 October 2006.

…”

17.  The issues which will fall to be decided in this action are as follows:

(i) Was the plaintiff a bailor of the goods in the circumstances of this case in the sense that the legal title to the goods lay with her?

(ii) If so, was the defendant, as bailee, required to deliver up those goods on demand under the terms of the bailment as evidenced by the account?

(iii) Were there any conditions under which the bailee was entitled to refuse to deliver up, eg the existence of a lien over the goods?

(iv) If so, did the defendant have such a lien and was it validly exercised, such that it was entitled to refuse to deliver up the goods and thereafter charge for the storage facilities provided plus interest and costs.

18.  But the issue that falls for me to decide in this rehearing is in fact far more simple.  Has the defendant satisfied the court that there is an issue or question in dispute that ought to be tried?  In the words of Ackner LJ in Banque de Paris et des pays‑bas (Suisse) SA v Costa de Naray [1984] 1 Lloyds Rep 21 at 23, the defendant has to satisfy the court that he has a “real or bona fide defence” or, per Ma CJHC, as he then was, in Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345, “a fair probability or reasonable grounds that a bona fide defence exists.”

19.  Accordingly, it is for the court to decide whether the defendant has satisfied the court that it has an arguable defence on the non delivery of the goods prima facie bailed to him by the plaintiff and/or, if a valid bailor/bailee relationship existed, does it have an arguable defence on whether it was entitled to a lien over the goods in November 2006 or subsequently.

The plaintiff’s case

20.  The plaintiff maintains that she purchased the Wine at arm’s length and at market value and that she had good title to the Wine.  Accordingly, when the Wine was transferred to her account with the defendant, she was the bailor of those goods and they should have been delivered up to her on demand.  She made that demand on several occasions during 2006 and thereafter but the defendant refused to deliver up the goods as he was obliged to do and he cannot in law deny her title: Biddle v Bond (1865) 6 B&S 225; 122 ER per Blackburn J:

“We do not question the rule that one who has received property from another as his bailee or agent or servant must restore or account for that property to him from whom he received it.”

21.  The plaintiff accepts that the defendant could refuse to deliver up the goods if it had a valid lien over them for non payment of charges but, in the circumstances of this case, that is not available to the defendant because the lien arose as a result of a wrongful act of the defendant.

22.  The plaintiff maintains that there was a system in place for the deduction of charges from her credit card and that it was open to the defendant to deduct such charges up to 31 October 2006.  It did not do so.  Further, the charges which accrued after 31 October 2006 arose as a result of wrongful non delivery and cannot be laid at the door of the plaintiff as she had constantly demanded production of the Wine.

23.  The plaintiff maintains that in the event of competing claims upon the Wine, it was incumbent upon the defendant to take out inter pleader proceedings to resolve that dispute.  By not doing so, the defendant had taken the risk entirely upon itself for the consequences of its lack of action.  There was, the plaintiff says, no good reason at all for failing to do so given that she was at all times contactable by email even if the defendant was not aware of her address.

The defendant’s case

24.  The defendant maintains that there is a serious dispute as to whether the plaintiff has title at all as evidenced by the correspondence from the trustees in bankruptcy on the issue of whether there was ever a purchase of the Wine in March 2004 given that the receipt of monies cannot be traced to All Full Investment Limited and that part at least of the Wine said to have been purchased in March 2004 was actually purchased by the husband after the date at which it was supposedly sold to the wife.  That should be sufficient without more, on the defendant’s submission, but in addition, the sale should be set against the background of the various proceedings taken out against the husband in 2005 which indicates that the Wine was disposed of in a deliberate and fraudulent attempt to evade its recovery by the trustees in bankruptcy.

25.  Further, even if there had been a valid sale and purchase, such sale was made in anticipation of bankruptcy proceedings and was voidable on the application by the trustees.  In such a situation the plaintiff held the wine on trust for the estate of her husband.

26.  In any event, says the defendant, even if the plaintiff had good title, there were arrears of storage charges as at November 2006 which triggered paragraph 6 of the Conditions of Service and thereby the defendant was entitled to exercise a lien over the goods for payment of those charges.  When they remained unpaid, it was entitled to demand storage at a commercial rate thereafter, with interest.

27.  The defendant maintains that there is no duty upon the defendant to interplead in the event of competing claims and that both parties were constantly threatening legal action, which, if acted upon, would have resolved the issue.  In any event, the plaintiff had deliberately evaded service by living at an unknown address in China.

The law

28.  This is not a mini trial: Man Earn, at 229G per Litton VP.  I have to decide on the papers whether the defendant has satisfied the court that it has a real or bona fide defence and I am so satisfied.  This is not a proper case for summary judgment.  The plaintiff has failed to satisfy the court that the defendant has no defence to the action.

29.  The outline given above indicates that there is evidence from which it is open to a trial judge to conclude that the plaintiff is not the legal owner of the goods and that she came by them fraudulently.

30.  There is evidence that the lien was triggered and that the defendant was entitled to payment at least up to 31 October 2006 as was found by the master.

31.  There is also a substantial factual and legal argument about who bears the responsibility for the delay thereafter in the face of both the plaintiff and the trustees in bankruptcy regularly threatening to sue the defendant and/or take out other ancillary proceedings, which may have resolved the issue.

32.  The defendant, of course, is not without blame, but it is for a trial judge to decide the true course of events and where the onus to proceed truly lay and who should bear responsibility for that.  In the end, the defendant may find itself in the same position as it does now but these are not simple issues and in my view quite inappropriate to be determined on the basis of competing, untested, affirmations in summary judgment proceedings where the full facts are not available. 

Conclusion

33.  Accordingly I conclude that this appeal against the decision of Master C Chow granting summary judgment must be allowed.  The defendant has unconditional leave to defend and the matter must proceed to trial.

34.  There will be an order nisi that costs on the application for summary judgment be the defendant’s costs in the cause.