CREDIT BASE (HK) LTD. v. BBDO HONG KONG LTD.

1992, No.A652

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In September 1991, the balance of a debt amounting to HK$1,469,561.43 had been outstanding from the Hyatt Regency Hotel (Hyatt) Xian, China to the defendant, an advertising and marketing agent incorporated in Hong Kong for about two years. After this length of time, the defendant was prepared to write off the sum due as a bad debt. However, in a final effort to secure payment, the defendant entered into a subscription agreement dated the 11th September 1991 with the plaintiff, a debt collecting agent incorporated in Hong Kong for a period of one year expiring on the 12th September 1992. The agreement provided for the defendant to pay a service fee of HK$3,500 and as the account was over one year old commission of 33% on all monies recovered.

2. The following terms of the agreement fall to be considered in this judgment :

"3. These services are available except where prohibited. Accounts settled directly (debtor makes payment directly to subscriber when accounts are proceeding in CREDIT BASE (HK) LTD) are subjected to the scheduled commission and charges applicable at the time CREDIT BASE (HK) LTD receives notice from Subscriber or otherwise learns of such event. Merchandise accepted by a Subscriber is considered a direct settlement.

4. Accounts passed to CREDIT BASE (HK) LTD for collection shall not be withdrawn until such accounts have been fully settled or have been closed as uncollectable accounts. If subscriber requests to withdraw an account proceeded in CREDIT BASE (HK) LTD, subscriber should get a prior consent from CREDIT BASE (HK) LTD. Any withdrawn account without prior approval from CREDIT BASE (HK) LTD is subjected to the scheduled commission or authorized charges.

10. The terms and conditions herein shall apply to all accounts that CREDIT BASE (HK) LTD accept and/or continue to handle for collection whether such accounts are accepted and/or handled during the period of this agreement or after expiration thereof."

The plaintiff did not disclose its identity to the Hyatt for Mr Yan, the plaintiff's operating manager used the fictitious name of Patrick Lam and said that he was employed by the defendant. Mr Yan testified that he uses a fictitious name in all cases in order to avoid repercussions and unnecessary trouble.

3. Although the plaintiff had been engaged as the defendant's collecting agent, the defendant was also in communication with the Hyatt in efforts to recover the debt and any information obtained was shared with the plaintiff who received copies of faxes that were received and sent. Copies of some of the faxes sent to the defendant were also copied to Mr Yan in his capacity as Patrick Lam. The defendant was aware of the fictitious name used by Mr Yan at the latest by about the 16th November 1992. However, the use by Mr Yan of a fictitious name has no significance in this case.

4. Apart from Mr Yan, Mr Dick Cheng, the plaintiff's sales and marketing manager, also dealt with the defendant's account with the Hyatt. Mr Cheng is no longer with the plaintiff and is believed to be living abroad. Accordingly, his evidence which concems the history of the account and its progress was adduced by way of a statutory declaration. However, there is little factual dispute upon the evidence in this case.

5. The defendant's finance director Mr Francis Leung is a chartered accountant with a wide experience in financial matters. He agreed that he instructed the plaintiff to apply pressure to the Hyatt and did not think that there would be any recovery of the debt without their assistance.

6. During the course of the agreement, the plaintiff made approaches to the Hyatt by way of faxes and long distance telephone calls. This resulted in a payment of HK$30,000 being made direct to the defendant in October 1991 and further payments of HK$30,000 each in November 1991, February 1992 and April 1992. All payments were made by the Hyatt direct to the defendant.

7. On the 15th April 1992, the plaintiff informed the defendant that the Hyatt had verbally promised to repay at least HK$30,000 per month. A further payment of HK$30,000 was made in May 1992 and another sum of HK$70,000 in June 1992. By the end of June 1992, HK$250,000 had been paid by the Hyatt. However on the 20th July 1992, the defendant wrote to the plaintiff expressing its dissatisfaction with the plaintiff's service for it was alleged that the payment had fallen below the 50% mark. Accordingly, the defendant purportedly gave the plaintiff one month's notice terminating the contract. No provision in fact is made in the contract for termination by a subscriber but the plaintiff is entitled to do so upon giving 30 days written notice. The plaintiff replied on the 23rd July 1992 expressing surprise that the defendant had stated that there was a condition providing for the recovery of 50% of the debt within the period of one year. The plaintiff also stated that having regard to a repayment schedule, it was expected that the debt would be fully recovered by July 1993 and enquired whether the defendant would reconsider its position.

8. After receiving this letter, the defendant replied on the 29th July 1992 stating that they had no objection to the plaintiff continuing as their collection agent provided that a better repayment schedule could be obtained from the Hyatt, and expressing their view that the balance outstanding should be paid by the 31st December 1992.

9. On the 7th August 1992, the plaintiff wrote a letter reminding the defendant that the subscription agreement would shortly expire and would require renewal. However the agreement was never renewed.

10. On the 6th October 1992 the Hyatt sent a fax to the defendant for the attention of Mr Leung stating that they proposed to make a monthly repayment of HK$120,000 with effect from October 1992 for a period of ten months but that any interest that had been claimed by the defendant in previous correspondence could not be paid.

11. Expressing further dissatisfaction with the performance of the plaintiff, the defendant by a letter of the 12th October 1992 terminated the contract with immediate effect. A sum of HK$120,000 was then remitted to the defendant by the Hyatt. Following receipt of this payment, the defendant wrote to the plaintiff on the 21st October 1992 stating that the contract was now extended until the 30th November 1992. Another payment of HK$120,000 was made by the Hyatt to the defendant on the 12th November 1992.

12. On receipt of all these payments by the Hyatt, the defendant paid the commission of 33% to the plaintiff upon demand being made.

13. On the 15th December 1992, the Hyatt sent a fax to the defendant which was copied to Mr Lam stating that it was their intention to settle the balance outstanding of US$98,502.48 once certain details with regard to the calculation of the balance was made. Previously by a fax of the 16th November 1992 Hyatt had deducted a sum of US$14,259.83 from the sum due in respect of claims that had not been supported by documentation. Ultimately a payment of US$98,403.98 was received by the defendant from the Hyatt on the 28th December 1992 in full settlement of the claim. The defendant also wrote to the Hyatt on the same day stating that all future correspondence should be addressed to Mr Leung or Miss Wan, the defendant's finance manager, for Patrick Lam was not a member of the defendant's staff.

14. After the final payment had been made to the defendant, the plaintiff submitted a debit note for their collection charges on the amount recovered in the sum of US$32,473.31. However, the defendant disputes liability on the ground that although commission was paid on payments received from the Hyatt up to the expiry of the contract, the agreement was not specifically renewed but merely extended until the 30th November 1992. Accordingly it was contended that the terms of the contract did not apply after the 12th September 1992. Nevertheless it is clear that as the agreement had been extended at least until the 30th November 1992, the terms and conditions were still in force. However, the defendant also contends that the payment after that date was entirely due to the defendant's efforts and was not attributable to any steps taken by the plaintiff prior to the 30th November 1992. The defendant also maintains that if it is accepted that the agreement was extended, it expired on the 30th November 1992. Indeed it is quite clear that there was a written agreement to extend the contract until the end of November 1992 so that the term with regard to commission payable applied.

15. In cross-examination Mr Leung said that when the defendant entered into the agreement with the plaintiff, he expected the Hyatt to repay about one half of the debt outstanding by the middle of 1992. This answer was however wholly inconsistent with his evidence that the defendant had been prepared to write off the debt as a bad debt and only instructed the plaintiff as a last resort. If he had genuinely expected that such a payment would have been made by the middle of 1992, there would have been no reason to have instructed the plaintiff.

16. When the defendant complained to the plaintiff about its performance in July 1992, the sum of HK$220,000 had been paid whilst payments in the ensuing months of August, September, October and November 1992 amounted to HK$390,000, making a total recovery of HK$610,000. The allegation as to the inadequacy of the plaintiff's performance was therefore not borne out by this evidence. The contention that the plaintiff was expected to have recovered 50% of the debt by July 1992 was not supported by any evidence and has no basis in fact.

17. It was asserted on behalf of the defendant that the clauses of the agreement are unenforceable because they constitute an unreasonable restraint of trade, but I am unable to accept this submission as there is no prohibition clause in the agreement.

18. Further, it was argued that the agreement amounts to a harsh or unconscionable bargain.

19. The law on this subject is encapsulated in Pao On and Others v. Lau Yiu Long and Others [1980] AC 614 where Lord Scarman had this to say at 634 :

"......, in a case where duress is not established, public policy may nevertheless invalidate the consideration if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position. Their Lordships' conclusion is that where businessmen are negotiating at arm's length it is unnecessary for the achievement of justice, and unhelpful in the development of the law, to invoke such a rule of public policy. It would also create unacceptable anomaly. It is unnecessary because justice requires that men, who have negotiated at arm's length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress. If a promise is induced by coercion of a man's will, the doctrine of duress suffices to do justice. The party coerced, if he chooses and acts in time, can avoid the contract. If there is no coercion. there can be no reason for avoiding the contract where there is shown to be a real consideration which is otherwise legal.

Such a rule of public policy as is now being considered would be unhelpful because it would render the law uncertain. It would become a question of fact and degree to determine in each case whether there had been, short of duress, an unfair use of a strong bargaining position. It would create anomaly because, if public policy invalidates the consideration, the effect is to make the contract void. But unless the facts are such as to support a plea of non est factum,' which is not suggested in this case, duress does no more than confer upon the victim the opportunity, if taken in time, to avoid the contract."

Further in Photo Production Ltd. v. Securicor Transport Ltd [1980] AC 827 Lord Diplock had this to say at 853 :

" Any persons capable of making a contract are free to enter into any contract they may choose: and providing the contract is not illegal or voidable, it is binding upon them."

20. I accept that the defendant specifically agreed by the letter of the 29th July 1992 to retain the services of the plaintiff until the end of December 1992. The purported termination of the agreement on the 30th November 1992 by the defendant was without the consent of the plaintiff. In any event, the plaintiff was entitled to rely upon clause 10 of the agreement to continue handling the account. Further efforts to secure payment were made by the plaintiff in December 1992 when eleven international telephone calls were made to the Hyatt.

21. The plaintiff was clearly retained having regard to its experience in recovering debts in China and the pressure it was able to apply for payment. What that pressure amounted to was not disclosed and is not relevant to these proceedings. In theory, the plaintiff need only have made one telephone call or sent one letter or fax which, if it had resulted in full payment being made, would have entitled the plaintiff to commission. The amount of work carried out by the plaintiff was irrelevant. The plaintiff would of course be entitled to commission during the period of the agreement and the terms and conditions would have been held over if the plaintiff had continued to handle the account with the consent of the defendant. It is unlikely that the plaintiff would have taken any steps to recover the debt if the agreement had expired and the defendant did not wish further action to be taken. In this case, after the agreement expired, the defendant intended that it should continue until the end of December 1992, then purported to terminate the agreement by the letter of the 12th October 1992 and subsequently agreed to extend the agreement until the 30th November 1992. Nevertheless, it was reasonable for the plaintiff to seek further time in view of the Hyatt's promise of imminent payment by the end of the year.

22. The defendant has raised by way of defence that the bargain was unfair and unconscionable, and therefore the contract was contrary to public policy. A declaration is sought that clause 10 of the agreement is void or unenforceable. The commission payable is undoubtedly high, but as a result of a commercial decision, the defendant entered into the contract with the plaintiff at arm's length where there was no inequality of bargaining power. There was no evidence of fraud, mistake or duress to vitiate the contract so that the agreement is neither illegal nor void. Further, although the work done by the plaintiff is irrelevant, it is clear and I accept the evidence that the recovery of the whole debt was brought about by the efforts of the plaintiff and not by the defendant.

23. The defendant was no doubt surprised at the substantial payments made by the Hyatt and clearly regretted entering into the agreement once monies were forthcoming, particularly the final payment. However, the defendant having freely entered into the agreement is bound by the terms and conditions.

24. Accordingly, the plaintiff is entitled to receive its commission on the amount as claimed in the statement of claim together with interest at 9% from the date of receipt of the balance by the defendant on the 28th December 1992. The counterclaim of the defendant is dismissed. There will be an order nisi for costs to the plaintiff.