XCHRX ALLIED CAPITAL RESOURCES LTD. v. GOLD TUBE LTD. AND OTHERS

HCA 15154/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15154 OF 1999

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REASONS FOR DECISION

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1. This is an appeal against a decision of Master Yuen of 6 June 2001 who ordered that there be a stay of execution of the judgment against the 1st and 3rd defendants of 10 November 1999. The precise wording of the order was that: there be a stay of execution of the Judgment dated 10th November 1999 against the 1st and 3rd Defendants until the Plaintiff be in a position to establish a valid resile from the agreement evidenced in the letter dated 12th November 1999 from the Plaintiff to the 1st Defendant. This is, of course, an appeal by way of rehearing, so I do not need to consider the terms of the order made, but refer to it only in respect of the agreement referred to therein, around which the arguments in this matter revolve. At the hearing I allowed the appeal and now give my reasons for so doing.

2. The history of the relationship between the parties and the commencement of these proceedings is unremarkable in that they concern banking facilities granted to the 1st defendant by the plaintiff in September 1998, guaranteed by the 2nd and 3rd defendants. Default having been made and demands for payment being unsuccessful, this action was commenced on 21 September 1999 and, no notice of intention to defend having been filed by any of the defendants, judgment in default was entered on 10 November 1999 for the sum of $1,825,085.00 and interest. What is more remarkable, and provides the grounds upon which the application for a stay of execution is founded, is the letter referred to above, dated 12 November 1998, although it is not in dispute that this is an error, and the correct date is 12 November 1999. The letter is addressed to the 1st defendant and reads as follows:

"Attn: Mr. Yuen, Jackson

Dear Sir

RE: Monthly Payment of HKD5,000

As per your request, for each month, please bank in HKD5,000 to us punctually to repay the bills loan outstandings.

Please keep your promise for the monthly payment. Otherwise, further legal action will be imposed.

Thank you for your attention."

3. Bearing in mind that the debt was then in excess of $1,800,000.00, the sum of $5,000.00 would not be sufficient to cover the interest, and would go nowhere to reducing the debt. I am accordingly puzzled how such an agreement can have been made. But made it was, and the plaintiff does not dispute it. A number of payments were accordingly made by the defendants over the following 15 months or so, but on 6 September 2000 the plaintiff issued a statutory demand pursuant to section 6A(1)(a) of the Bankruptcy Ordinance, followed by a bankruptcy petition on 12 October 2000. This was stayed upon the 1st and 3rd defendants filing an application to set aside the judgment on 24 March 2001, and on 31 May 2001 they filed the application for this stay of execution. On 5 June 2001 they withdrew their application to set aside the judgment, but proceeded with the application for a stay of execution, which resulted in the above order the next day.

4. The first ground on which Mr Chan for the plaintiff opposes the defendants' application is that there is no jurisdiction under Order 45, rule 11 upon which this is based. He points out that an application under that rule can only be brought on the ground of matters which have occurred since the date of judgment, and this was an agreement made before the date of judgment, notwithstanding that the letter was dated two days after judgment was entered. The fact that it was made before judgment comes from the 3rd defendant's own evidence in his two affidavits. Indeed, in his second affidavit he strenuously denies that the agreement was made in November, but was made orally in October and the first payment of $5,000.00 was made under it on 1 November 1999. This would explain why the letter refers to his promise, which must already have been made, and reads as a reminder to him to continue making the payments. The plaintiff's Mr Lam Wing Nam says in his affidavit that he believes that the agreement was made in November, but after instructions had been given to enter judgment. From the evidence of the 3rd defendant and the date of the first payment, I am satisfied that it was before the judgment was entered, and the application must fail on this ground alone as being outside the provisions of the rule.

5. The next matter relied on by Mr Chan is that he says that the defendants in any event defaulted on the payments required under the agreement, and it is clear, from an account produced by the plaintiff, that regular payments of $5,000.00 were not made, although larger sums were paid in on occasions to further reduce the indebtedness. Until June 2000 the plaintiff had in fact received a greater amount from the defendants than they would if only $5,000.00 had been paid monthly. However, after June 2000, no further payments were made by the defendants and six cheques for $2,500.00 each were dishonoured.

6. The circumstances of this were described by the 3rd defendant in his affidavits. He says that arrangements were made for other companies called Speedy Win and City Champion who had facilities with the plaintiff for dealing with letters of credit, to allow a small percentage of the sums received into their accounts to be applied towards reducing the 1st defendant's debt, and it is clear from the plaintiff's accounts that this was done, and over the following months a number of sums of money credited to the account. However, it is also clear that this arrangement did not permit the defendants to cease making any payments themselves under the agreement. This is conceded by the 3rd defendant in his affidavit where he says that, under these arrangements, the sum payable by the defendants was agreed, with the plaintiff's Mr Chiu, to be reduced to $2,500.00 a month. There is no suggestion that the total payment off the debt should be reduced to this sum, which would make no commercial sense. If there was such an agreement to reduce the defendants' payments, and for the purposes of this application I shall assume there was, then they have been in breach of it since June 2000 as they have paid nothing, and the cheques which they gave to the plaintiff have been dishonoured. The plaintiff cannot now therefore be held to the agreement.

7. Mrs Chan for the defendants relies also on the agreement as promissory estoppel, and estoppel by representation, and that it would be unconscionable for the plaintiff now to seek to take proceedings to enforce the judgment. There are, as I see it, three problems with this argument: the first is, as I have already found, the agreement was before the date of judgment and, if it amounted to estoppel, could have been a defence to the proceedings, and it cannot therefore now be used as a ground for a stay; second, again, as I have already found, the defendants were in breach of their obligations under the agreement, and it cannot be unconscionable for the plaintiff to seek to enforce; but, thirdly, there is ample authority that a promisor can resile from his promise on giving notice to the other party. In my view, the statutory demand under the Bankruptcy Ordinance was such notice, or at the latest the writ herein. It made it clear to the 3rd defendant that the plaintiff now wished to enforce payment of the amount due, and was not such as the other could not resume the position he had been in prior to the promise. That had been that the defendants owed a large sum of money which was immediately payable. Following it, their position improved considerably as they did not immediately have to pay the whole sum due, provided that they complied with the terms of the agreement, and by resiling from it, the plaintiff returned them to the original position, which was no worse than that they had previously been in. Indeed, it may also be argued that estoppel did not enter into it at all, as the agreement did not alter the defendants' position to their detriment, which is a necessary requirement, but rather improved it.

8. For these reasons I allowed the appeal and ordered the stay of execution lifted forthwith, with costs to the plaintiff.