XCHRX LINCOLN SEREJO VENANCIO v. CWT BEHEERMAATSCHAPPIJ BV

HCSD 14/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS

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J U D G M E N T

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Introduction

1. This is an application to set aside a statutory demand. It went before Yuen J. on 15th February 1999, who granted an adjournment to enable the Respondent to file further evidence. However, according to Yuen J.:

"On the face of the evidence so far, the company claiming the benefit of the debt CIWT or CWT is different from the company claiming to have the benefit of the guarantee on the basis of which the statutory demand has been issued, that is CWT-B. On that basis, there would have been a sufficiently triable issue for the statutory demand to be set aside"

2. I will adopt the same abbreviations: CIWT for "Compagnie Internationale Des Wagonlits Et Du Tourisme", CWT for "Compagnie De Wagonlits Et Du Tourisme", and CWT-B for CWT Beheermaatschappij BV, the Respondent.

3. The further evidence is to be found in a letter from CIWT dated 2nd March 1999. The letter claimed that CIWT had transferred to CWT-B by notarial act in the Netherlands, amongst other things, the benefit of money owed by CIWT by Spectrum International Marketing Limited ("Spectrum") and the benefit of a personal guarantee given by the Applicant on 22nd August 1996. The letter went on to say that CWT-B should have been the Plaintiff in High Court Action No.4123 of 1997 and that CIWT "does not intend to take any further action in that High Court Action". CIWT also purported to claim that CWT-B "has the benefit of personal guarantee given by Mr. Venancio on August 22, 1996, and accordingly we confirm that we do not have a claim against Mr. Venancio in this regard. He should pay the money he owes to" CWT-B.

4. High Court Action No.4123 of 1997 arose out of a sale of airplane tickets sold and delivered to Spectrum, a BVI company, which had a place of business in Hong Kong. The sale was made by the Lausanne branch of Carlson Wagonlit Travel, in August 1996, for the World Volleyball Grand Prix which was promoted or organised by Spectrum. Carlson Wagonlit Travel is a trade name. It seems to be accepted that it was CIWT's trade name, at least prior to an assignment by CIWT to CWT-B dated 29th November 1996. One of the issues in this application is whether the assignment is effective.

5. Spectrum was unable to pay for the airplane tickets. It seems not to be disputed that CWT was not obliged to deliver those tickets except against payment. CIWT has obtained Judgment against Spectrum in High Court Action No.4123 of 1997.

6. The statutory demand, the subject of this application, arose out of a guarantee given by the Applicant in respect of Spectrum's liability. One critical issue in this application, is, who, if anyone, is entitled to enforce the guarantee.

Background

7. On 12th August 1996, there was a request by Carlson Wagonlit Travel, for the payment of CHF612,000 for the tickets. That was reduced by a telefax dated 13th August 1996 to CHF450,000 and US$60,000. According to CWT, they needed "urgently this amount to order the tickets from airlines".

8. Spectrum was unable to pay in full. By a fax dated 13th August 1996, Spectrum offered to pay or procure the payment of a total of US$110,000, leaving the balance to be paid by 30th October 1996, and concluded by saying "I hope your company can grant us these terms, ...".

9. On 15th August 1996, following some conversations, Spectrum wrote again saying

"Please understand that spectrum is not trying to negotiate ...

I would like to propose that you continue processing of WIGP travel arrangements. I will send USD50,000 immediately. I will seek my Managing Director's approval on additional funds within the next several days.

I trust that you and I will keep a continued dialogue on this issue until it is paid in full"

10. It seems that WCT was willing to accommodate Spectrum. In their telefax of 16th August 1996, they offered the option of

"1. 50% (i.e. USD250,000) paid to our bank ...

2. set up a <<first demand guaranty>> for US$250,000 from a well established bank ..."

11. It was also said that "although all tickets were pre-paid in previous years", the option was offered "due to the good relationship you have with our Lausanne agency director ...".

12. The fax concluded with this remark:

"If none of those options is matched on Monday 19/8/96 before 1700 Geneva time, we will be forced to stop tickets deliveries. Be informed that Mr. Dall 'Agio will also contact FIVB President in Mexico today".

13. This last sentence is relied on in the Applicant's case on economic duress.

14. After a further conversation between the Applicant, Mr. Venancio and Varesano, WCT's Finance Director, WCT made what was described in the telefax dated 19th August 1996 as their final proposal. This proposal contains 4 conditions:

"1. Payment cash USD200,000 ... before 20/8/96 ...

2. Spectrum cheque ... for USD100,000 ... dated 20/8/96 ...

3. Letter of personal guaranty from you (the applicant), committing yourself to Carlson Wagonlit Travel for the payment of Spectrum debt in case of default of payment for a maximum amount of USD300,000

4. Final payments will take place on:

30/9/96 for USD150,000

31/10/96 for USD150,000 (adjusted to final statement)

If you decide or cannot agree on these conditions, we shall not deliver the tickets. We will nevertheless be prepared to switch all already made bookings to another travel agent you may choose"

15. The offer was accepted on August 20 by Spectrum, which concluded with this remark:

"Thank you for your flexibility, for the future we can arrange agreeable terms long in advance to avoid a similar situation next year"

16. The guarantee, which gave rise to the statutory demand, is dated 22nd August 1996 and provides:

"This acknowledges receipt of your telefax dated 19 August 1996 in regards to WVGP payment terms.

This is to confirm my personal guarantee for the maximum payment of USD300,000 to Carlson Wagonlit Travel in the event of default of payment by Spectrum of such sum".

Economic Duress

17. The first ground relied on by the Applicant to set aside the statutory demand is that the guarantee was given under economic duress.

18. Mr. Clifford Smith, who appears for the Applicant, has referred me to what he described as an analogous example of a transaction being set aside for economic duress, namely, B & S Contracts v Victor Green Publications (1984) 1 CR419. That was a case where shortly before an exhibition was due to open, the plaintiff demanded immediate payment of extra money. The extra money was required because workmen engaged by the plaintiff refused to work unless their demand for ￡9,000 severance pay (to which they were not entitled) was met. The plaintiff offered only ￡4,500 and informed the defendant that the contract would be cancelled, relying on the force majeure clause, unless the defendant paid the remaining ￡4,500, not as an advance on the contract price, but as an additional sum. The defendant had no alternative but to pay, for otherwise the exhibition would have been a disaster, as it was too late to make other arrangements. The English Court of Appeal held that the plaintiff acted unreasonably in not paying the money to avoid the threatened strike and could not have cancelled their contract with the defendant on the force majeure clause if the contract had not been performed. The defendant succeeded on economic duress.

19. That decision is clearly distinguishable. It cannot be suggested that WCT should have paid for the tickets and supplied them to Spectrum on credit. Nor was WCT demanding extra payment.

20. Although the law on economic duress is still in the course of development, it is clear to me that some improper or unconscionable conduct is required.

21. Here, WCT was willing to accommodate Spectrum, partly because of past dealings and partly no doubt because the tickets were required for an important event. Instead of insisting on payment, WCT was prepared not to stand on their strict legal right. It is impossible, indeed unfair, to say that WCT was guilty of any improper or unconscionable conduct. No doubt the Volleyball Grand Prix meant a lot to the Applicant. But that per se is enough. There is nothing in what WCT has done which has gone beyond what is normal or legitimate in commercial arrangements.

22. The Applicant, relying on the last sentence in WCT's telefax of 16th August 1996, has suggested that he was press-ganged into giving the guarantee. He also relied on the fact that the tickets were required urgently. But as that telefax shows, they were prepared to switch the bookings to another agent. More importantly, CWT was under no obligation to supply the tickets on credit. It will play havoc to commercial activities, if a defence on economic duress can be based on such flimsy evidence.

23. I do not believe economic duress is a genuinely arguable defence.

24. However, the matter does not stop here. Although the application to set aside rests on 3 grounds, none of which is now seriously relied on by the Applicant, I have to decide this application on the basis of the evidence now before me.

Assignment and guarantee

25. The Applicant relies on 2 other matters which, if established, may be fatal to the statutory demand.

26. The first is that the assignment relied on by the Applicant, which admittedly is governed by Dutch law, might not have actually transferred either Spectrum's debt or the Applicant's guarantee to the Respondent. This assertion is supported by an opinion from a Dutch lawyer, Mr. Den Hertog. Mr. Hertog relies on Clause 5 of the Assignment. Clause 5 is possibly consistent with his view. Moreover, according to Mr. Hertog, the assignment would not be effective until notice has been given to the Applicant.

27. The second is that the Applicant contends that the proper law of the guarantee is Swiss law, and that according to Swiss law, the guarantee is defective because it has not been notarised. There is a legal opinion from Mr. Reynald P. Bruttin of Messrs. Niklaus Hodel Poggin Plantin & Bruttin, a firm of Swiss lawyers.

28. Evidence on Dutch and Swiss law was served by the Applicant on the Respondent on 12th May 1999.

29. In order to avoid an adjournment, Mr. Barlow on instructions, sensibly decided not to rely on conflicting evidence from their own Dutch and Swiss lawyers, who were only made available today to the Applicant.

30. Now the assignment is critical to the statutory demand because if the debt and/or the guarantee has not been assigned to the Respondent, then it has no right to serve a statutory demand because it would not be a creditor. Only a creditor can serve a statutory demand. s.6A Bankruptcy Ordinance.

31. The enforceability of the guarantee is also critical because if it is not enforceable, no debt can arise under the guarantee.

Are these genuine triable issues?

32. I have already referred to Yuen J's remarks when she adjourned the hearing on 15th February 1999. I do not believe the letter of 2nd March 1999 has sufficiently clarified the matter. Doubts remain. If the assignment was effective, why was it that CIWT was the plaintiff in 1997 in the claim against Spectrum? That is now acknowledged to have been a mistake because it is said that CIWT "does not intend to take any further action in that High Court Action".

33. Mr. Barlow relies on the letter of 2nd March 1999. What the letter has done is to admit that it was wrong for CIWT to be the plaintiff in the action against Spectrum. It does not explain how the mistake came to be made. No doubt the writer of the letter genuinely believes that there has been an effective assignment. But there is no evidence that the writer has any knowledge of Dutch law. More importantly, even if he were a Dutch lawyer, I am not in a position to decide whether he is right or Mr. Hertog is correct. The letter is consistent with the Applicant's case that the assignment was not effective. Mr. Barlow argues that CIWT could have sued as the assignor. I do not know whether as a matter of Dutch law that was possible. But in any event, as the letter made clear, CIWT does not claim to have been entitled to sue as such.

34. Mr. Hertog's opinion on Clause 5 of the assignment coupled with the continued confusion over High Court Action No.4123 of 1997 have led me to conclude that this is a genuine triable issue.

35. There is also the requirement of notice of the assignment. Although had this been the only point, it may be that that would not be a good reason for setting aside the statutory demand. By now, the Applicant has had ample notice and if I were to dismiss the application, I can regulate the time for the presentation of a bankruptcy petition so that the Applicant would not be prejudiced.

36. I turn to consider the guarantee. Hong Kong law governs the choice of law.

37. Mr. Smith submits that the proper law is Swiss law. He relies on the following:

(1) the contract of guarantee was concluded in Switzerland because it was sent by fax and thus the contract was made at the place of receipt of the fax (in Lausanne, Switzerland)

(2) the place of performance was Switzerland since the creditor was resident there. It is the debtor's duty to seek out his creditor and pay him wherever he is resident

(3) the currency of the relevant obligation was Swiss Francs, this being the currency of the underlying debt arising from the supply of airline tickets priced in Swiss Francs

(4) one party to the guarantee contract was a branch of CIWT formed in Switzerland and carrying on business there

Mr. Barlow contends that the proper law is Hong Kong law. He relies on:

(1) the fact that the Applicant was a Hong Kong resident

(2) Spectrum, although a BVI company, had a place of business in Hong Kong, and the tickets were supplied and delivered to its Hong Kong office

(3) That the currency of the guarantee is U.S. Dollars

38. On an application to set aside a statutory demand, the test is whether "on the evidence there is a genuine triable issue". That is the approach in England. Practice Note [1978] 1 WLR119. I believe the same approach should be followed here. Statutory demands are only meant for clear cases. That is why this matter was only fixed for a 2 hour hearing. I am bound to say I have reservation about the Applicant's claim that the proper law of the guarantee is Swiss law. However, I am not prepared to say that it is not genuinely arguable.

39. For the above reasons, I will set aside the statutory demand.

Costs

40. I also make an Order Nisi that the Applicant should have 50% of the costs of the application.

41. My present view is that, although there is some basis for Mr. Barlow's criticism of the piecemeal development of the Applicant's case, it is clear from the correspondence that the Applicant has tried to obtain information regarding the identity of the Respondent. See Robertson Double & Lee's letters dated 8th January 1999 and 12th January 1999. The identity of the respondent is relevant, of course, to its right to serve the statutory demand. However, the Applicant was late in providing evidence of foreign law on which he has succeeded. Also the Applicant has failed on economic duress which I regard as unmeritorious. Taking everything into consideration, and subject to submissions to the contrary, I believe an Order that the Applicant should only have half of his costs to be appropriate.