RE LIU YI FANG

HCB 5613/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5613 OF 2013

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R E A S O N S   F O R   J U D G M E N T

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1.  By a bankruptcy petition (“Petition”) presented by Rich Shine Investments Ltd (“Creditor”) on 2 August 2013, a bankruptcy order was sought against Mr Liu Yi Fang (“Debtor”) based on an unsatisfied judgment debt in the sum of HK$84,050,474.79 plus interest (“Judgment Debt”) pursuant to the Judgment of Madam Justice Mimmie Chan (“Judgment”) granted in HCA 1189/2012 (“Action”) on 11 April 2013.

2.  There was also a summons taken out by the Debtor on 27 January 2014 (“Summons”) for (a) leave to file and serve his 2^nd affirmation for the hearing which took place on 5 February 2014 and (b) specific discovery.

3.  The Summons was dismissed at the beginning of the hearing.  At the end of the hearing, the usual bankruptcy order was made against the Debtor with costs in favour of the Creditor. My reasons appear below.

Background

4.  The following background facts are uncontroversial.  The Judgment was given pursuant to an application for summary judgment by the Creditor (as the 2^nd plaintiff) against the Debtor (as the 3^rd defendant) in the Action.

5.  On 24 April 2013, the Debtor (and the 1^st and 2^nd defendants in the Action) filed a Notice of Appeal against the Judgment (CACV 84/2013) (“Appeal”).  The Appeal will be heard on 30 April 2014.

6.  A statutory demand for the Judgment Debt was issued by the Creditor against the Debtor on 29 April 2013 (“Statutory Demand”).

7.  Efforts made to serve the Statutory Demand on the Debtor personally were unsuccessful.  It was eventually served on the Debtor by way of an advertisement on a newspaper published on 22 May 2013.

8.  With the leave of Master H Au-Yeung dated 19 July 2013, the Petition was filed on 2 August 2013.

9.  The Petition was served on the Debtor by way of substituted service pursuant to the Order of Master M Wong dated 19 September 2013.

10.  The Petition was first heard by Mr Justice Poon on 21 October 2013 when the court gave directions for the filing of evidence with the usual embargo on further evidence without the leave of the court.

11.  The second hearing of the Petition took place before Madam Justice Mimmie Chan on 25 November 2013 when the court adjourned the Petition for argument.  Further, the court refused the Debtor’s application for leave to file an affidavit of his solicitor and to file further affirmation to reply to the Creditor’s evidence.  Another order prohibiting the filing of further evidence without the leave of the court was made.  In the evidence in support of the Summons, it was explained that the court refused leave to file further evidence because of the absence of an affirmation to explain the lateness of the application.

Summons

12.  Mr Chang, who appeared for the Debtor, had abandoned the discovery application at the hearing.  The very late attempt to adduce in evidence the 2^nd affirmation of the Debtor flies in the face of both the orders of Mr Justice Poon and Madam Justice Chan.  In particular, there is no appeal against the order of Madam Justice Chan. 

13.  Mr Chang submitted that the absence of explanation had been remedied in the supporting evidence for the Summons.  With respect, I do not believe that this is the proper way to conduct proceedings. If there was an explanation for the delay in filing evidence, the Debtor should have asked for an opportunity to put it before Madam Justice Chan.  There is no suggestion that such an action was taken.  In these circumstances, it is an abuse of process to have a second bite at the cherry. 

14.  I also agree with the submission of Mr Liu, who appeared for the Creditor, that to allow the application would either deprive the Creditor of an opportunity to reply to the fresh evidence or force an adjournment of the hearing so that such evidence could be filed.  Neither scenario is acceptable.  Accordingly, the Summons was dismissed with costs to the Creditor.

Issues

15.  The Debtor opposed the Petition on four grounds :

(1) The Creditor had failed to satisfy the conditions conferring bankruptcy jurisdiction, namely, that at any time during the period of 3 years ending with the date of the Petition (“Relevant Period”), the Debtor had had a place of residence in Hong Kong (Mr Liu had abandoned the contention that the Debtor had carried on business in Hong Kong at any time during the Relevant Period). 

(2) The Statutory Demand was not properly served on the Debtor, as the Creditor had not done all that was reasonable to bring it to his attention.

(3) The orders for leave to file the Petition and substituted service of the same should be set aside on the ground of material non-disclosure by the Creditor in the ex parte applications before the Masters.

(4) The Debtor has a meritorious appeal against the Judgment which will be heard very soon, and it would be just for the Petition to be adjourned pending such appeal.  The adjournment would cause no prejudice to the Creditor.

Place of Residence

16.  The applicable part of Section 4(1) of the Bankruptcy Ordinance, Cap 6 provides as follows :

“(1) A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor –

…

(c) at any time in the period of 3 years ending with that day[1] –

(i) … has had a place of residence, in Hong Kong; or

  …”

17.  I accept that the burden is on the Creditor to prove that the statutory conditions giving rise to bankruptcy jurisdiction were satisfied.

18.  Both Mr Chang and Mr Liu had referred this court to the authority of Re Ku Chu Keung (a debtor) [2006] HKCLRT 171 at para 52, Deputy High Court Judge Louis Chan (as he then was) held as follows :

“… if a person has a house or lodging in Hong Kong to which he can return, and he occupies or intends to occupy the place as a place of residence, then he has a place of residence in Hong Kong. It is not necessary to show that he occupied the place for the whole of the 3 years preceding the presentation of the petition; it suffices that he had a place of residence at some time during the 3 years. Furthermore, a person may have more than one place of residence at the same time.”

19.  In many cases of the present kind, the place of residence of the debtor is a matter of inference based upon the available evidence.  The evidence in this case is compelling. First of all, there is indisputable evidence that in his commercial dealings with the Creditor, the Debtor used an office address at Sun Hung Kai Centre, Wanchai (“SHK Address”).  That same address was used by the Debtor in his affirmations filed in the Action.

20.  Secondly, the Debtor is a shareholder and director of no less than 10 Hong Kong Companies.  According to the annual returns of these companies filed within the Relevant Period, the residential address of the Debtor is 24D, Tower 1, Euston Court, 6 Park Rd (“24D”). 24D is owned by the Debtor and his mother.  The SHK Address is where the registered offices of these companies are situated.

21.  Thirdly, the Debtor has a Hong Kong Identity Card and there is no quarrel by Mr Chang that one needs to be a Hong Kong resident to qualify for such a document.

22.  Fourthly, the Debtor’s own evidence is that whilst he has moved back to live in Beijing, he would visit Hong Kong from time to time.  What is conspicuously missing from his evidence is where he would stay when he is here.  If he does not have a place of residence in Hong Kong, one would expect him to say that he would be staying at a hotel or certain temporary accommodation.  In light of the company records, which Mr Chang had accepted as giving rise to prima facie evidence that the Debtor resides at 24D, such omission in the Debtor’s evidence can only fortify the prima facie case.

23.  I have no doubt that, on the evidence, the Debtor is a Hong Kong resident.  He may fly in and out of Hong Kong but he has kept a place of residence here, namely, 24D.

24.  In respect of Mr Chang’s submission that there are 2 other possible places of residence identified by the Creditor (flat 24E of the same building at Euston Court and a property at South Horizons, No 32 Yi Nam Rd) and that the Debtor can be residing in one of those places rather than 24D, I agree with Mr Liu that the Debtor can have more than 1 place of residence (see para 18 above).

Service of the SD

25.  As regards the evidence that the Debtor’s mother (who apparently resides at 24D) had said that he was often in Beijing and had mentioned the name of a street there when she was asked about the Debtor’s address, it has to be considered with common sense and a healthy degree of scepticism. It is plain from the evidence that the Debtor’s mother was far from forthcoming in revealing the whereabouts of the Debtor.  However, the lady never denied that the Debtor resides at 24D.  There is nothing in this point.

26.  Rule 46(2) of the Bankruptcy Rules provides as follows :

“The creditor shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.”

27.  In Re Lela Tong, HCB 14214/2009, unrep, 15 June 2011, Barma J (as he then was) summarised the relevant principles at para 8 as follows :

“(1) The bankrupt bears the initial burden of showing that the petitioner had not done all that was reasonable for the purpose of bringing the statutory demand to the notice of the Bankrupt, as required by rule 46(2) of the Bankruptcy Rules, dealing with service of statutory demands.

(2) Whether or not the petitioner had done all that was reasonable for this purpose is to be judged objectively, according to the information actually or constructively available to the Petitioner at the time when service is attempted.

(3) If the bankrupt succeeded in discharging this burden, the onus shifted to the petitioner to establish that such steps as he should reasonably have taken could not or would not have resulted in the statutory demand coming to the attention of the bankrupt.”

28.  See also Re Pang Mei Lan May [2005] 1 HKC 319 at paras 25 to 28 :

“25. Rule 46(2) specifies the steps which must be taken by a creditor in relation to service of a statutory demand on a debtor. The creditor is required to do ‘all that is reasonable’ for the purpose of bringing the statutory demand to the debtor’s attention. Where personal service is practicable, this is required. But the steps to be taken by the creditor must, I think, also include doing all that is reasonable to effect personal service, such as the taking of reasonable steps to obtain an address at which personal service might be effected. This seems to me to follow from the general requirement of doing all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention. If a creditor has not been able to serve the debtor at the address or addresses which he has in his records but has other information or other means available which might enable him to obtain an address for service, it seems to me that he should make use of them, where it is reasonable to expect him to do so, with a view to bringing the statutory demand to the attention of the debtor.

26. Thus, where a creditor has one or more addresses for a debtor, personal service should ordinarily be effected at each of those addresses. Where a creditor has one or more avenues by which an address for service might be obtained, he should, if it is reasonable for him to do so, follow up those avenues so as to obtain, if possible, an address for service. Whether or not it will be reasonable to expect him to do so will depend on the particular circumstances of the case, including the ease with which the step in question can be taken, and the likelihood of obtaining information which might enable personal service to be effected. If an enquiry can be made without much difficulty or effort, it will generally be reasonable to make it even if the chances of obtaining information are not particularly high. On the other hand, where the chances of obtaining information that might enable personal service to be effected are good, it may be reasonable to take steps which are more onerous or involve the expenditure of greater time and effort. It should of course be borne in mind that the purpose of requiring the creditor to take these steps is to bring the statutory demand, failure to comply with which is likely to have serious consequences for the debtor, to the debtor’s attention.

27. I would also add that as Yuen J (as she then was) pointed out in Re Li Wai Man (HCB 211/99, CFI, 1 November 1999, unreported), what is reasonable is to be judged objectively in the light of the information actually or constructively available to the creditor at the time (see para 31 of the judgment).

28. If, as a result of making such reasonable inquires, he obtains such an address, he should attempt personal service at it.  Where personal service has failed, and reasonable enquiries have led nowhere, it will always be open to the creditor to take such other steps as may be reasonable to bring the statutory demand to the debtor’s attention.  In many cases, this will consist of an advertisement of the statutory demand in a newspaper circulating in Hong Kong.”

29.  The issue here is whether the Creditor had done all that was reasonable to bring the SD to the attention of the Debtor.  I have no difficulty finding that the Creditor had discharged such obligation.  Indeed, the evidence demonstrates that the Creditor was keen to enforce the Judgment and that no effort had been spared in attempting to serve the SD on the Debtor.  In this regard, this court is assisted by a detailed chronology produced by Mr Liu which sets out the steps taken in attempting to serve the SD on the Debtor.  The chronology is not disputed.  The relevant part of that document (pp 1-8) is attached to this Judgment as Annex A.

30.  Further, I am satisfied that the Creditor’s solicitors (“FZ”) had complied with and taken the applicable steps set out in para 2.6 of Practice Direction 3.1 (Bankruptcy and Winding-up Proceedings).  Para 2.5 of the same provides that : “… the steps set out in [para 2.6] are considered reasonable steps that should normally be taken by a creditor to discharge his obligation under Rule 46(2) in respect of the service of a statutory demand”.  Mr Chang had, fairly, accepted that such compliance constitutes a prima facie case that Rule 46(2) had been satisfied.

31.  However, Mr Chang challenged the Creditor’s case by submitting that the SD could and should have been served on (a) a Beijing address (“Beijing Address”), which appears to be the head office of Full Link Group of which the Debtor is said to be the president and (b) the Debtor’s solicitors (“HWY”), who continue to act for the Debtor in the Appeal.

32.  In respect of the Beijing Address, to begin with, there is no clear evidence from the Debtor that he could at any material time be found at that place.  As indicated above, his dealings with the Creditor were conducted in Hong Kong.  Indeed, the SHK Address is the office of Full Link Enterprises Ltd.  I am unable to see any basis for suggesting that the Creditor should have known that the Debtor could be found at the Beijing address.  Moreover, the allegation by the Debtor’s mother that he was often in Beijing only came about after the issuance of the Petition and is therefore irrelevant.   Finally, the Creditor did subsequently engage investigators to find out if the Debtor could be located in Beijing. The evidence is that the Debtor had refused to reveal his whereabouts to the investigator.

33.  As regards the suggestion that the SD should have been served on HWY, FZ did in fact write to HWY (enclosing a copy of the SD with the letter) shortly after the SD was issued asking whether they had instructions to accept service thereof. However, they were duly informed by HWY that they had no instructions to do so.

34.  It is accepted by Mr Chang that normally once a firm of solicitors had said that they had no instruction to accept service on behalf of their client, it would be the end of that avenue.  It is therefore surprising for this point to be taken.

35.  Para 13 of the Debtor’s affirmation stated as follows :

“I understand that FZ has on 30 April 2013 written to HWY whether the latter firm has instructions to make arrangement of appointment for personal service of the Statutory Demand or instructions to accept service. In reply, HWY have written to FZ confirming that they have no instructions to act for me in relation to the Statutory Demand. This is not surprising as it was/is my view that this court should not exercise any bankruptcy jurisdiction over me, hence I did not authorize HWY to act for me in that regard. However, the important point is that it does not mean HWY do not have any communication with me. If the relevant Statutory Demand and the Petition were served on HWY instead of by way of advertisement in a local newspaper which I would not and have never read, then I would have notice of the Statutory Demand and the Petition. Instead, they knowingly chose ineffective means to serve the Statutory Demand and Petition on me in their ex-parte application for substituted service.”

36.  I agree with Mr Liu that the Debtor had, probably inadvertently, admitted that he had knowledge of the SD via HWY because a copy of that document was enclosed with the letter from FZ and that he had given instructions, as he must have, to HWY not to accept service of that document.

37.  It is perfectly plain from the evidence before the court that the Debtor had been evading the service of the SD, and in doing so he had taken every advantage available to him and exploited the disadvantages to the Creditor under the rules.  Whilst it is true, as Mr Chang had submitted, that the Debtor had no obligation to assist the Creditor in bankrupting him, such behaviour has two consequences.  Firstly, it will impact upon what is reasonably required under Rule 46(2).  In short, if a debtor is evading service, there is no point in exploring every avenue to track him down.  Secondly, such behaviour can damage the credibility of the debtor’s evidence.  Put another way, the court may be more willing to draw adverse inference against him.

38.  The Debtor is entitled to challenge the bankruptcy jurisdiction over him after accepting service of the SD.  I am unable to see how the evasion of service had assisted his cause.

39.  For these reasons, I reject the Debtor challenges over the service of the SD.

Non-disclosure

40.  It is contended by the Debtor that the Creditor should have disclosed in the ex parte applications 2 material facts, namely, (a) the possibility of finding the Debtor at the Beijing Address and (b) it was likely that documents served on HWY would reach the Debtor.

41.  I believe that these points have been adequately covered in the analysis above.  I see no substance in the complaint.

Adjournment

42.  This point can be dealt with swiftly.  Mr Chang had rightly accepted that an adjournment of the Petition would in effect be a stay of execution.  There is no application for a stay of execution of the Judgment and no explanation why such an application has not been made.  I do not begin to see why it is proper for this court to exercise its power to short-circuit the appeal procedure.

Conclusion

43.  In the premises, the usual bankruptcy order was made against the Debtor with costs.

44.  Last but not least, I am grateful to counsel for their assistance.

Annex A

HCB 5613/2013

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PETITIONER’S CHRONOLOGY

(For the hearing before the Honourable Mr. Justice Anthony Chan

on 5 February 2014 at 10 am)

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[a/b/c/d] means the reference in bundle a, under tab b, on page c.