XCHRX YEUNG KAI FAI FRANK AND ANOTHER v. LI MEI TRADING CO.

HCSD24/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND NO.24 OF 1999

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J U D G M E N T

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1. This is an application by the Debtors (the Applicants) to set aside two statutory demands for the sum of US$1,363,303.58.

Extension of time

2. The Debtors had delayed in lodging this application by two days. I will grant leave for this application to be issued out of time. The delay, as explained by Mr Leung, Counsel for the Debtors, was due to the travel and business commitments of Mr Yeung, the first Debtor, who is the husband of the second Debtor. The 21-day period in which the Debtors have to comply with the statutory demand has not expired. In my view, no prejudice is suffered by the Creditor (Respondent) for this two-day delay.

The Agreements

3. I will now deal with the merits of the application. By an agreement dated 9th December 1998, the Creditor agreed with Pam & Frank International Holdings Limited ("International") to lend to International RMB17,400,000. International in turn agreed to give US$2,000,000 to the Creditor by a certain day. Clause 3 of the Agreement provided that "International's Chairman, Mr Yeung Kai Fai, Frank, (the first Debtor), agrees to give personal guarantee to the (Creditor)".

4. By a Guarantee dated 10th December 1998, the first Debtor, after reciting the terms of the agreement previously contained in the agreement of 9th December 1998, stated that :

"I hereby agree to the above terms of the agreement and personally guarantee the performance of the agreement."

5. By a further agreement dated 30th December 1998, the Creditor agreed to lend International RMB8,230,000 and International agreed to pay US$1,000,000 by a certain date. The agreement further provided that the outstanding amount payable by International under the agreement of 10th December 1998 was postponed and payable before a certain date. Clause 6 of the Agreement provided that :

"Mr and Mrs Yeung Kai Fai hereby personally guarantee the performance of the this agreement."

The agreement was signed by the Debtors.

6. Part payment of the loan had been made to the Creditor leaving a balance of US$1,363,303.58.

Misrepresentation

7. The Debtors argued that the guarantees were obtained from them by misrepresentation. Mr Zhang and Mr Tang of the Creditor represented to them that :

"(a) The Respondent (Creditor) was satisfied with the financial status of Pam & Frank International and its ability to perform its obligations under the swap agreements;

(b) The Respondent required a simple sentence of guarantee to be inserted in the swap agreements as a matter of formality to please its superior;

(c) Even if Pam and Frank International was in default, the Respondent would only sue Pam and Frank International and would not enforce the guarantee against the Applicants (Debtors)."

The swap agreements referred to in that paragraph are the agreements I had previously referred to.

8. In my view, this defence is inherently improbable and incredible. The Debtors are not some ordinary people not familiar with the commercial world. Mr Yeung is the founder and majority shareholder of a listed company. Until recently, he and his wife were the directors of International. He is still the President of a company of the International group of companies. With this commercial background, it is simply not credible that he would be induced into a contract of guarantees by the so-called representation. What the Debtors are saying is that despite the clear terms of the agreements, they had no intention to create legal relations. In my view, this is not a genuine triable dispute.

Conditional payment

9. The Debtors further argued that the parties had agreed on 13th January 1999 that the Creditor would lend another RMB60,000,000 before 19th January 1999 by bank draft payable within 150 days. International agreed to pay US$1,350,000, "(constituting International's unperformed part of the agreement between the parties made on 8th December 1998) within 5 days of receiving the amount mentioned in paragraph 1. In addition International would send by telegraphic transfer US$5,100,000 to a bank account nominated by the Creditor on or before 10th February 1999. ....." (paragraph 2)

10. The Debtors stated that the Creditor failed to pay this sum and as a result the US$1,350,000 was not yet due. Mr Leung argued that if the RMB was not remitted within the stipulated time, then the time for doing so had to be renegotiated, but the obligation of the Creditor to provide the money first remains unchanged.

11. I must say on first blush there is some attraction in this argument, but on analysis, this is not something that really constitutes a genuine triable dispute. The matter can be tested this way : if despite negotiation, there was no agreement reached, would the Debtors be absolved from their liability? The answer must be "no" because the obligations of the Debtors arose by the two previous agreements. The debt was already in existence at the time of the third agreement. It would require clear words in the third agreement that the breach of the Creditor would absolve them from their previous liability. There is no such words in this agreement.

12. Mr Sussex, Counsel for the Creditor, accepted that the remedy available to the Debtors for the breach by the Creditor is by way of damages. The damages would be the interest incurred by the Debtors in borrowing the US dollar to pay the Creditor. I agree. Furthermore, even if the damages is the equivalent amount of the RMB to cover the US dollar to be remitted by the Debtors, they in any event would have to repay that portion of the RMB. So in fact there is no such damage available to the Debtors.

Set-off

13. The final argument of the Debtors is that there is a set-off available to International in relation to the breach of another contract by the Creditor. Mr Leung accepted that the total amount of this set-off is only US$154,000 odd. This clearly is not sufficient to extinguish the claim nor in any way constitute a ground under Rule 48(5)(b) of the Bankruptcy Rules. The Debtors clearly are unable to pay a substantial amount of the debt to the Creditor.

Application dismissed

14. In the premises, I have to dismiss the application.