RE MILAN ORNAMENT MANUFACTORY LTD.

HCCW 970/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 970 OF 1999

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J U D G M E N T

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1. In these proceedings, the Petitioning Creditor petitions for a winding up order be made against the Respondent Company, Milan Ornament Manufactory Limited, ("the Company") on the ground that the Company is unable to pay its debt. The debt in question is in the sum of $65,407.99, being the outstanding balance of a judgment debt together with interest thereon and costs. It is not in dispute that the amount remains outstanding and unpaid. The ground on which the Petition is opposed is that the Petitioning Creditor had agreed to forego this amount.

Background

2. It is not in dispute that by October 1998, the Company was indebted to the Petitioning Creditor in the total sum of $164,945.00, being the price of goods sold and delivered to the Company. 2 cheques in the amount of $69,625.00 and $43,550.00 were issued by the Company, but were dishonoured upon being presented to the bank for payment. It is common ground that between 3 November and 25 November 1998, the Company had deposited 3 sums, totalling $75,000.00, into the bank account of the Petitioning Creditor, leaving a balance of $89,945.00. On 14 December 1999, the Petitioning Creditor issued proceedings in the District Court under action no. DCCJ 25970/98 claiming for the said balance of $89,945.00. No Defence was filed by the Company and a default judgment was entered on 18 January 1999 for the sum of $89,945.00 together with interest thereon and fixed costs of $1,230.00 ("the Judgment Debt"). It is common ground that between 26 February and 15 April 1999, the Company deposited 6 sums, totalling $32,000.00, into the Petitioning Creditor's bank account. As at 2 September 1999 when the Petitioning Creditor's solicitors served the statutory demand, the outstanding balance of the Judgment Debt, stood at $65,407.99. The Company did not comply with the statutory demand whereupon the Petition was presented on 29 October 1999.

The Issues

3. The Company's defence is that an oral agreement was made between the Petitioning Creditor and the Company in the end of October 1998 ("the Oral Agreement") whereby the Petitioning Creditor agreed to accept from the Company a sum equivalent to two-thirds of $164,945.00 in full and final settlement of the debt due from the Company to the Petitioning Creditor. The Company alleges that as a result of the $107,000.00 paid between 3 November 1998 and 15 April 1999, the Petitioning Creditor is not entitled to pursue the balance against the Company.

4. The Petitioning Creditor denies such an agreement. The Petitioning Creditor however accepts that there was an agreement reached in early February 1999, as embodied in a Chinese document signed by the parties ("the Chinese Agreement"). Under the Chinese Agreement, the Petitioning Creditor agreed to give a 15% discount on the Judgment Debt on condition that the Company paid the remaining 85% by 2 cheques post-dated to 12 and 27 February 1999. 2 cheques each in the sum of $38,621.88 were issued by the Company. The first cheque was dishonoured upon presentation to the bank. The second cheque was not presented, the Petitioning Creditor says, on the request of the Company.

5. The issues for determination on the Petition are:

(1) Whether as a matter of fact the Petitioning Creditor had agreed to accept a payment of 2/3 of $164,945.00 in full and final settlement of the debt of $164,945.00;

(2) Whether as a matter of law, the aforesaid agreement is legally binding and enforceable; and

(3) If the aforesaid agreement is binding and enforceable, whether it affords any defence to the Petition.

The Evidence

6. Mr Sung Ho Cheong, the majority shareholder and director of the Company had testified. According to him, after the Petitioning Creditor's solicitors had sent out a letter of demand dated 14 October 1998 for $164,945.00, a man called Robert came to the Company's office. This man was from a debt collecting company called Universal Investment Consultant. He caused disturbance and trouble to the Company's business and also uttered threats to the employees of the Company. Eventually by the end of October 1998, Mr Sung on behalf of the Company and Robert on behalf of the Petitioning Creditor reached the Oral Agreement. Under the Oral Agreement, it was agreed that if the Company could pay 2/3 of $164,945.00 to the Petitioning Creditor as soon as possible, then the Petitioning Creditor and Robert would regard the whole debt as being settled and the Petitioning Creditor would not pursue the outstanding balance while Robert would not cause any further disturbance to the Company. Mr Sung said that on the basis of the Oral Agreement, the Company paid the 3 sums totalling $75,000.00 between 3 and 25 November 1998. However, the Petitioning Creditor reneged on the agreement and issued the District Court proceedings and even proceeded to obtain judgment.

7. Then on 25 January 1999, Robert visited the Company's office with the Chinese Agreement. He again created disturbance and threatened to summons others to cause trouble to the Company. He demanded Mr Sung to sign on the agreement and to issue 2 cheques each for $38,621.88. Mr Sung said he had no alternative but to do as told. Later on in early February, after arguing with Mr Lau Kit Hung, a director of the Petitioning Creditor, over the phone, Mr Lau agreed with him that the Petitioning Creditor should abide by the Oral Agreement. The Company therefore countermanded the 2 cheques that accompanied the Chinese Agreement, and also paid 8 sums, totalling $32,000.00 into the Petitioning Creditor's bank account. Thereafter, the Petitioning Creditor and Universal Investment Consultant no longer went after the Company for payment.

8. The Petitioning Creditor's director, Mr Lau, also gave evidence. He testified that he only came to know Robert and Universal Investment Consultant after the Petitioning Creditor had instituted the District Court proceedings. He denied agreeing to or authorizing Robert to enter into the Oral Agreement. He testified that throughout Mr Sung was requesting the Petitioning Creditor for time to settle the debt. After the letter of demand dated 14 October 1998 was issued, Mr Sung offered to pay the debt of $164,945.00 by 8 weekly instalments. Thereafter, the Company made the 3 payments in the total sum of $75,000.00. As the Company made no further payment after 25 November 1998, the District Court action was brought on 14 December 1999. After obtaining the default judgment and with a view to saving further legal costs, he decided to engage Universal Investment Consultant to try to recover the Judgment Debt. After being told by Robert of his discussions with Mr Sung, Mr Lau agreed to waive 15% of the Judgment Debt. The Chinese Agreement was drafted by Mr Lau and given to Robert. After being signed by the Company, the Chinese Agreement accompanied by 2 cheques of $38,621.88 each were handed to the Petitioning Creditor by Robert. The first cheque dated 12 February 1999 was dishonoured when presented to the bank for payment. Mr Sung then requested Mr Lau not to present the other cheque and promised to settle the outstanding amount as soon as possible. The Company then paid $8,000.00 into the Petitioning Creditor's account on 26 February 1999 and continued to make 5 other payments until 15 April 1999. No further payment was received thereafter and the Petitioning Creditor could not contact Mr Sung, the winding up proceedings were therefore commenced.

9. As the Company does not dispute the existence of the Judgment Debt and its validity, the burden is on the Company to prove and establish its ground of opposition.

10. Having regard to the contents of Mr Sung's evidence, I do not find him truthful nor his account reliable. He was evasive even with very straightforward and simple questions. He was evidently at pain to play up the fact that the Petitioning Creditor had at one stage engaged the service of a debt collecting company. In cross-examination, irrespective of the content of the questions put, Mr Sung would invariably say that Robert had been causing disruptions and disturbance at the Company's office, that Mr Lau had acted unconscionably by going back on his words and by instructing a debt collector to ruin the Company.

11. At the same time, Mr Sung's evidence is inherently illogical and inconsistent. When he was cross-examined on the 2 cheques for $69,625.00 and $43,550.00 which were bounced in August and September 1998, he denied that they were dishonoured. He stated that the cheques should only be presented after due notice was given to or given by the Company. When it was pointed out to him that the bank account had in fact been closed when the 2nd cheque was presented, Mr Sung said that the Company had already decided not to maintain that account and that was the reason why the Petitioning Creditor should have waited for notice from the Company before presenting the cheque. If indeed the Company had intended not to maintain the bank account, it is difficult to understand why the Company should in the first place issue cheques drawn on that account. Further, no useful purpose can be achieved by either the Petitioning Creditor giving notice of its intention to present the cheque or waiting for notification from the Company before presenting the cheques since the account was going to be closed.

12. As for the Oral Agreement, allegedly the Company's obligation under it was to make payment of 2/3 of $164,695.00 as soon as possible. It is difficult to understand why no further payment was made after 25 November 1998 and before the institution of the District Court proceedings on 14 December 1998. The payment did not resume until 26 February 1999, more than 3 months later. There was also no further payment after 15 April 1999. Up to that stage, the total amount paid did not come up to 2/3 of $164,945.00. Mr Sung had been at pain to stress the disturbance and nuisance caused by Robert. In his own words, Robert's conduct at the Company's office had been a source of suffering for him and everyone working in the Company such that everyone was hoping and trying to have the 2/3 payment paid as soon as possible. It is also his evidence that everyone in the Company knew that the Company could not afford not to clear the debt due to the Petitioning Creditor. That being the case, it is even more difficult to understand the long lapse of time between 25 November 1998 and 26 February 1999 and the non-payment after 15 April 1999. In addition, it is Mr Sung's evidence that he left the payments to be handled by the accounts department of the Company and that it was only in January 2000 that he did a calculation on the total amounts paid by the Company to the Petitioning Creditor between November 1998 and April 1999. This suggests that Mr Sung did not have much concern for the debt owed to the Petitioning Creditor and he paid little attention to the issue of payment. This is hardly compatible with his evidence that Robert had been such a threat, nuisance and pain for him and the Company. On the other hand, without the direction or intervention from Mr Sung, there is no reason why the accounts department of the Company would withhold payment between 25 November 1998 and 26 February 1999 and also after 15 April 1999, if there were indeed the Oral Agreement and Mr Sung had instructed the accounts department to make payments to the Petitioning Creditor in accordance with the terms of the Oral Agreement.

13. Further, if there were this Oral Agreement, it would be extremely odd that the Company would not respond to the District Court proceedings and would have allowed judgment to be entered by default, when clearly both the claim and judgment entered had taken no account of the 1/3 discount said to be agreed under the Oral Agreement.

14. It is also Mr Sung's evidence that after the Chinese Agreement was signed and the 2 cheques issued, he managed to get Mr Lau to agree to revert to the Oral Agreement instead of going by the terms of the Chinese Agreement. If that is the case, one would have expected the Company to demand the return of the signed Chinese Agreement and the 2 accompanying cheques for cancellation and/or destruction. The evidence of Mr Sung does not suggest that he had ever done so or thought of doing so. That is hardly consistent with Mr Sung's perception of Mr Lau as an unconscionable person and one who keeps going back on his words, an observation that Mr Sung placed great emphasis on throughout his evidence.

15. In my view, Mr Sung's evidence is plainly unreliable, and I reject it. I do not accept that the parties had reached the Oral Agreement in the end of October 1998. I also do not accept that the Chinese Agreement was executed and the 2 cheques accompanying it were issued by the Company under compulsion from Robert or in circumstances when the Company was left with no choice. I further do not accept Mr Sung's evidence that subsequently the Petitioning Creditor through Mr Lau had agreed to follow the terms of the Oral Agreement instead of enforcing the Chinese Agreement.

16. As for Mr Lau's evidence, I find it much more logical and convincing. I do not consider it odd or unusual that he should resort to debt collecting company when he had issued legal proceedings and obtained judgment. His explanation that it was due to costs consideration that he decided to try out the debt collector instead of opting for the execution process is an understandable one, bearing also in mind that the Judgment Debt is of a modest amount. Mr Sung's suggestion that Mr Lau is greedy and harbours a secret agenda of using the legal process to confirm the full amount owed by the Company is entirely groundless. It is entirely legitimate for the Petitioning Creditor and Mr Lau to expect and demand full payment of the debt of $164,945.00, which admittedly was the price of goods due and owing from the Company. There is nothing morally or legally wrong for the Petitioning Creditor and Mr Lau to insist on full payment. I do not find the attack and criticisms levelled at Mr Lau and his evidence sustainable. I accept the evidence of Mr Lau and where it conflicts with Mr Sung's, I prefer the former.

The Law

17. Having found as a fact that the parties did not reach the Oral Agreement as alleged by the Company, that would have been sufficient to dispose of the case. However, even if I were wrong and that there were the Oral Agreement, the Oral Agreement does not afford the Company with any basis to oppose the Petition.

18. By October 1998, the debt due from the Company to the Petitioning Creditor was a liquidated debt of $164,945.00. The alleged Oral Agreement is in effect an agreement to accept part-payment in full settlement of the liquidated debt, which was already due and owing and payable. The Oral Agreement, being made orally and not under seal, has to be supported by consideration before it is legally binding and enforceable. The amount of the debt and the obligation to pay were not disputed. The allegation of the Company is that the payment of 2/3 of the debt was agreed to be made as soon as possible. In the circumstances, there is plainly no consideration in the form of either benefit going to the Petitioning Creditor or detriment moving from the Company. The Oral Agreement is therefore not supported by both accord and satisfaction and is not binding on the Petitioning Creditor: see Chitty on Contract (28th edition) Vol. 1 paras. 3-107 to 3-109 and Foakes v. Beer (1884) 11 Q.B.D. 221.

19. Further, even if the Oral Agreement is binding on the Petitioning Creditor, the undisputed fact is that the Company has failed to perform its obligation thereunder. The total payments made by the Company only come up to $107,000.00 when 2/3 of $164,945.00 is $109,963.33. On the Company's own case, it was only when the Company had paid 2/3 of $164,945.00 that the Petitioning Creditor would not pursue the remaining 1/3 balance. That being the case, the Company is in no position to rely on the Oral Agreement to resist the Petition.

Conclusion

20. For the above reasons, the opposition to the Petition cannot stand. The evidence clearly establishes that a debt of $65,407.99 was due and owing from the Company to the Petitioning Creditor as at the date of the presentation of the Petition and the same continues to be due and owing. The Company is unable to pay its debt. Accordingly, I make an order that the Company be wound up with costs to the Petitioning Creditor, to be taxed.