XCHRX IU, LAI & LI (A FIRM) v. WONG YUEN

HCSD19/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND NO.19 OF 1999

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D E C I S I O N

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1. This is an application by the Debtor to set aside the Statutory Demand dated 1 March 1999 issued by the Creditor. The Statutory Demand is based on the balance of legal costs and disbursements in connection with the preparation, negotiation and completion of a loan agreement ("the Loan Agreement") entered into by Ambitious Success Limited ("Ambitious Success") as the borrower and Permek Venture Limited ("PVL") as the lender on 22 April 1998.

2. The Debtor is the sole director and shareholder of Ambitious Success which is a BVI company. It entered into a transaction to acquire PVL's shares in a Hong Kong listed company ("the Share Sale Agreement"). The Share Sale Agreement was entered into on 22 April 1998, completion of which was conditional on a number of matters. Suffice to say that the transaction ultimately fell through.

3. For the purposes of funding the purchase, Ambitious Success and PVL entered into the Loan Agreement. Clause 21 provided as follows :

"All costs and expenses in connection with the preparation, negotiation and completion of this Agreement, the Security Documents and other matters incidental thereto shall be borne by the Borrower (Ambitious Success) absolutely."

The Debtor relied on clause 21 in support of his submission that the obligation to pay the legal costs were those of Ambitious Success and that on that basis the Statutory Demand ought to be set aside. The Debtor also relied on subsequent conduct by the Creditor in that some six letters in respect of the unpaid legal costs were sent to Ambitious Success in the second half of 1998.

4. The Creditor filed an affidavit to the effect that it first received instructions in early April 1998 from its client, Mr George Chan who was the sole beneficial owner of PVL relating to the Share Sale Agreement. It was the Creditor's understanding that the shares were to be sold to the Debtor and that Messrs Richards Butler would be representing the Debtor. In respect of the funding arrangements, the Creditor's evidence is that it was instructed by both Mr Chan and the Debtor to prepare the Loan Agreement and that the Creditor was informed by Mr Chan and the Debtor that the Debtor would be entering into the Share Sale Agreement and the Loan Agreement through a corporate vehicle, i.e. Ambitious Success which is a two-dollar shelf company.

5. In paragraph 6 of the affirmation of Tsang Link Carl, Brian filed on behalf of the Creditor, it was alleged as follows :

"....It was agreed between George [i.e. Mr Chan], the Debtor and the Creditor that the Debtor would pay for the Creditor's costs in preparing the Loan Agreement and the Security Documents..."

It further alleged that at the time the transaction documents were executed by the parties, a Mr Ricky Li, the authorized agent or representative of the Debtor, negotiated with the Creditor in respect of the Creditor's legal costs. These were originally to be charged at $150,000 plus disbursements but after negotiation, were reduced to $130,000 plus disbursements.

6. After the Creditor had met with no response to its various letters addressed to Ambitious Success in respect of the unpaid legal costs, it sent a personal demand on 9 February 1999 to the Debtor. According to the affirmation of Mr Tsang, on the following day, i.e. 10 February, he received a call from Ricky Li who acknowledged receipt on behalf of the Debtor of the Creditor's letter of 9 February. Mr Tsang was given to understand that part of the outstanding fees would be settled after the Chinese New Year holidays. Later the same month, on 26 February, the Creditor received a cheque in the sum of $25,000 in partial settlement of the bill. There is no covering letter in evidence. The cheque is a cheque drawn on the account of a company by the name of Silver Flow International Holding Company Limited ("Silver Flow").

7. It is not in dispute that the fee notes, the six letters addressed to Ambitious Success as well as the personal demand addressed to the Debtor were all sent care of Silver Flow whom it would appear, at some point prior to 10 February, moved from the Bank of China Building to Great Eagle Centre. Nothing turns on the change of address.

8. The Creditor thus relies upon the oral agreement. Although the Debtor was given leave to file an affidavit in reply, he did not do so. On the evidence, therefore, the allegation of this oral agreement between the Creditor and the Debtor is not refuted or denied, nor has any evidence been filed denying the alleged conversations with Ricky Li and the allegation that he was the authorized representative or agent of the Debtor. It is also clear that Ambitious Success is the alter ego of the Debtor. In these circumstances, the fact that the Debtor would have entered into such an oral agreement is perfectly understandable. Clause 21 of the Loan Agreement merely goes to the burden of costs as between Ambitious Success and PVL. It does not preclude an agreement such as is alleged between the Creditor and the Debtor.

9. Since the Debtor has chosen not to deny the existence of this oral agreement, plainly there is only one conclusion the court can reach : there was a concluded oral agreement between the Creditor and the Debtor that the Debtor would meet the fees of the Creditor.

10. Although Mr Lee for the Creditor has also advanced an alternative ground, in view of the conclusion I have reached, it is not necessary to consider the alternative submission.

11. For this reason, the application to set aside the Statutory Demand is dismissed with costs.