RE SUNG SZE YIN DANIEL

HCB 478/2019

[2019] HKCFI 2264

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 478 OF 2019

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DECISION

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Application

1.  By summons filed herein on 29 March 2019, Mr Sung Sze Yin Daniel (the “bankrupt”) asked to “擱置有關破產令”.  He did not refer to any provision under the Bankruptcy Ordinance (Cap 6) and/or Bankruptcy Rules (Cap 6A).  At the outset of the hearing, I tried to clarify with him the nature of his application.  

2.  As a litigant in person, the bankrupt was unable to do so.  

3.  Counsel for the petitioner, Ms Tam, prepared for her case upon 2 bases:

(a) staying the bankruptcy proceedings (擱置破產法律程‍‍序) under section 104 of the Bankruptcy Ordinance (Cap 6) (“BO”), and /or

(b) rule 80 of the Bankruptcy Rules (Cap 6A) (“BR”) for annulment of bankruptcy order (廢止破產令).  

4.  To take a conservative approach, I directed the hearing originally fixed before me to be heard in chambers to be changed to be in open court to cater for the statutory requirement regarding annulment of bankruptcy order as per section 5 (b) of BO. 

5.  As it transpired after hearing submissions from parties, the bankrupt was in fact applying to annul the bankruptcy order^[1] made against him.  

Background

6.  On 24 January 2019, the petitioner commenced the present petition against the bankrupt.  Briefly, the former said that the latter had been his insurance agent but their agreements were terminated on 8 March 2018. The bankrupt did not repay bonus and interest after demands, including service of a statutory demand effected by an advertisement in newspaper.  

7.  On 21 February 2019, an order for sub-service of the Petition was granted so that the same was effected on the bankrupt by an advertisement in newspaper and ordinary post to the last known address (the “Kowloon City address”) of the bankrupt.  

8.  On 20 March 2019, usual bankruptcy order was made against the bankrupt in his absence. 

9.  On 29 March 2019, the bankrupt took out the present application.  He prepared a supporting affirmation.  In short, he said that the petitioner knew that both the Kowloon City address and 6098-xxxx were incorrect.  He also had a personal e-mail account for contact.  He kept contacting the petitioner and did not run away from his liability.  He was able to pay the claim.  He doubted the integrity of the petitioner in its application for sub-service of the petition against him.  

10.  The petitioner opposed the application and filed an affirmation to oppose it.  It was said, inter alia, that the explanation by the bankrupt on the discovery of the bankruptcy order was unbelievable.  From the record of petitioner, the Kowloon City address and 6098-xxxx were the last known address and phone number of the bankrupt.  He had himself to blame because he did not inform the petitioner by the relevant company form.  Having said that, the petitioner did also try to contact the bankrupt through the new phone number 6513-xxxx, but in vain.  As to the e-mail account, again, the bankrupt did not inform the petitioner by the change of company form.  Finally, having checked with records of the bankrupt, it was untrue that he had proactively liaised with the petitioner in relation to the debt.  He made no attempts to make payment to settle it in full or in part. 

11.  The bankrupt made a reply.  He disagreed with the objection.  He did inform the petitioner of his new address and new phone number.  He reiterated that he had never received the demand letter, statutory demand and petition.  

12.  Parties appeared before me on 7 August 2019.  Having heard from them, I reserved my decision to be handed down.  Here it is.  

Applicable principles

13.  The applicable principles in an application to annul a bankruptcy order can be conveniently located in the authority of Re Chan Chi Ho, ex p Strong Well International Ltd [2008] 5 HKLRD 871 wherein the Hon. S Kwan J (as she then was) said that: 

“15. The burden is on the applicant to show on the balance of probabilities that the bankruptcy order ought not to have been made (Edelsten v Deputy Commissioner of Taxation (NSW) & others (1989) 86 ALR 257).

16. If the court considering the application for annulment is satisfied that the default judgment on which the petition is founded would have been set aside by reason of irregularity, it would be open to the court to annul the bankruptcy order. However, it should be borne in mind that the court has a residual discretion to refuse to set aside a default judgment even if it is held to be irregular, if there are factors that make it appropriate to do so (Re Mai Xi Hong (unrep., HCB No. 550 of 1996, [2004] HKEC 1547), Barma J, paras. 33 and 34).

17. It has also been held that a bankruptcy order ought not to have been made where the bankrupt has shown a strong prima facie case that the underlying debt in the default judgment against him is substantially disputed, and has given a plausible explanation of the circumstances relating to his non-appearance at the hearing at which the default judgment was made and at the bankruptcy hearing that resulted in the bankruptcy order (Re Luk Tsun Yin [2000] 1 HKC 774 at 777).

18. Failure to serve the statutory demand properly is a ground for holding that the bankruptcy order ought not to have been made (Re Lam Lai Wah Susanna [2002] 4 HKC 334).

19.       If the court is satisfied the order ought not to have been made, it is not bound as a matter of course to annul the bankruptcy order, but must consider in the light of all the circumstances whether the order ought to be annulled (Delph Sing v Wood & Others (1918) 25 CLR 497 at pp. 498-499; Re Ditfort, ex p Deputy Commissioner of Taxation (1988) 83 ALR 265 at pp.267, 293-294).  The discretionary power to annul must be exercised with great caution, and should not be exercised except in special circumstances (Ex p May (1884）LR 12 QBD 497； Butterworths Hong Kong Bankruptcy Law Handbook (3rd ed., 2007) para.33.03).”

Discussions

14.  Applying the above principles into the present case, the questions to be decided will be:

(a) Has the bankrupt shown on balance that the bankruptcy order ought not to have been made, including was the petition properly served on him?

(b) Even if the bankruptcy order ought not have been made, as a matter of discretion, having regard to all the circumstances of the case, including has the bankrupt shown a substantial dispute on the underlying debt as contained in the statutory demand, is it still not to be annulled? 

The bankruptcy order ought not to have been made?

15.  Parties had a vigorous dispute over service of the petition.  The petitioner insisted that it had taken reasonable and practical steps to serve the same upon the bankrupt, including reasonable and practical steps in ascertaining the last known address (Kowloon City address) and mobile phone number(s) of the bankrupt.  The bankrupt maintained that he had no knowledge of the petition at the material times.  He argued that he had informed the petitioner of his new address and new telephone number.  

16.  Upon consideration, I take the view that the petition was not properly served upon the bankrupt, notwithstanding the substituted service having been made.  

17.  With the contemporaneous exchange of e-mails produced by the bankrupt, on balance, I agree to accept that he did inform the petitioner sometime in March 2017 that he had not been residing in the Kowloon city address.  The petitioner knew it. 

(a) e-mail from the petitioner to the bankrupt (to office e-mail account) on 17 March 2017 at 14:25

“Dear Daniel,

As per our meeting this morning, I learned that you didn’t receive the Company letters after your last de-code date (13 Jan 2017).

Thanks and Regards,

Michelle”

(b) e-mail from the petitioner to the bankrupt (to personal e-mail account) on 17 March 2017 at 19:29

“Dear Daniel,

As you have not activate your Company e-mail account, here I attached the email I sent to your company email address at 14:25 TODAY. You can get the attachment with the letter.

Thanks and Regards,

Michelle”

(c) e-mail from the petitioner to the bankrupt (to personal e-mail account)

“Daniel:

根據你的要求更改通訊地址，請填妥附上的個人資料更改表格並盡快交回。同時，因為合約 reinstate 的緣故，須要填寫表格 ITOC…

Ka Wai”

18.  Parties nonetheless had a big quarrel on whether the bankrupt had returned the filled forms.  Unlike the above correspondence, in this respect, the bankrupt did not have a concrete proof.  

19.  On the other hand, the petitioner also maintained that it had not received forms as requested.  Hence, Ms Tam argued that:

“22. The Petitioner is a company with over 2,800 agents and 400 staff… the Petitioner’s “knowledge” of the last known address and telephone number of its agents is maintained through the Petitioner’s record system (the “Corporate System”), whereby an agent informs the Petitioner of his change in address via formal documentation, viz. “Change of Personal Information Requisition Form” (the “Form”)…The Debtor had not filled out any Form to update the Corporate System despite his claim that his address had changed.

23. …The Debtor appears to be suggesting that the Petitioner has the duty to make enquiries, outside of the established Corporate System, with various staff of the Petitioner (being a separate legal personalities from the Petitioner), to establish whether there have been any outside-the-system interactions that suggest the Debtor has a different address. This is patently not reasonable or practicable.

24.       The clear purpose of having a system whereby an agent informs the Petitioner of his change of address via a Form is to set out a practicable method by which …”

20.  I do not consider that I need to make a finding in this respect.  Take the petitioner’s case to its highest, namely, the bankrupt did not return the forms, the petitioner still fails me because it did not disclose to the court all the material information in its hand during the application for substituted service.  

21.  The petitioner has missed the important point.  It is not the reasonableness or practicality of its corporate system that matters, but its failure to inform the court all information available to it at the material times.  One should have informed the court that, notwithstanding the Kowloon City address being the last known address of the bankrupt within the petitioner’s system, he was in fact not residing there.  He had new address, new mobile phone number and personal e-mail address, not having been properly updated.  No doubt, the court would have required the petitioner to try them before allowing the substituted service application.  

22.  Further, judging from the conduct of the bankrupt in an earlier incident and the implication of a bankruptcy order against an insurance agent, on balance, I agree to accept that he had no knowledge of the petition and making of bankruptcy order until sometime in late March 2019.  

Is the bankruptcy order still not to be annulled?    

23.  I now move to the 2^nd question.  

24.  Ms Tam said that the bankrupt had not shown a strong prima facie case that the underlying debt is disputed.  The bankrupt made assertions as to an appeal process which might impact the debt but had adduced no evidence on the same.  The bankrupt also claimed that he was able to pay but had not produced evidence.  

25.  The bankrupt maintained his stance. He further disputed the amount owed. In his own words, it would be only a few tens of thousands owed to the petitioner only.  Given that a bankruptcy order had much implication over his professional life as an insurance agent, his family would have helped him.  

26.  One of course could understand the force of Ms Tam’s argument.  However, to balance them against the material non-disclosure of the petitioner at the time when he asked for order of substituted service, I am prepared to turn the clock back so that parties will go back to square one and we will see how they would deal with it.                              

Costs Order Nisi 

27.  I have not heard from the parties in relation to the question of costs. However, it appears to me that no order as to costs is appropriate in the circumstances whereby both parties succeeded and failed in some issues.  I therefore will make an order nisi (which will become absolute within 14 days from the date hereof) of no order as to costs, including all costs reserved.  

Conclusion

28.  To conclude, I will make the following orders.

(a) The bankruptcy order made herein on 20 March 2019 be annulled.

(b) There be an order nisi (which will become absolute after 14 days from the date hereof) of no order as to costs, including all costs reserved.