Article

Note: Hang Fung Jewellry Company Limited (Hang Fung) was a wholly owned subsidiary of 3DGold Jewellry Holdings Limited (3D). Hang Fung was "engaged in the manufacture, wholesale, trading and retailing of gold products, other precious metal products and jewelry products." Soon after 3D's chairman died, provisional liquidators were appointed for Hang Fung and 3D.

Prior to a creditor's petition to wind up the company, Hang Fung placed a purchase order for 40 1 kg 9999 gold bars with Heraeus Limited (Seller/ Beneficiary) for a total price of HK$8,756,240. On the same day, Hang Fung (Applicant) prepared an application for the issuance of a LC from Standard Chartered Bank (Hong Kong) Limited (Issuer) in favor of Seller/Beneficiary for the purchase of the 40 gold bars. The application contained a provision giving Issuer a continuing security over assets of Applicant.

By its terms, the LC was payable "at sight" and required the presentation of the "Cargo Receipt issued and signed by authorized signatory(ies) of Applicant ... evidencing receipt of the goods ... in good order and condition" and "signed invoices in three originals." The delivery was made and documents presented, and payment was made to Seller/Beneficiary. Issuer then presented invoices to Hang Fung, demanding reimbursement. Before payment was made, provisional liquidators were appointed. The Pledge and Trust Receipt were registered as provided by law.

After the chairman's death, the gold bars were found in a safe box owned by the Applicant. Issuer then claimed that the 40 gold bars were its property as payment for the LC. The provisional liquidators sold the gold bars for HK$9,202,462.74 and placed those funds into an account pending the resolution of the controversy. After analyzing whether or not Applicant's pledge to Issuer that the bars were security was a "bill of sale" requiring special registration under the Bills of Sale Ordinance, the Court of First Instance, Hon Kwan JA, concluded that Issuer was owed the segregated funds because the Bills of Sale Ordinance did not cover a pledge of this type.

JEB/krp

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