KWAN KAM WAH v. BANK OF CHINA (HONG KONG) LTD

HCSD 8/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 8 OF 2013

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BETWEEN

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D E C I S I O N

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Introduction

1.  There was before this court an application by the Applicant (“Mr Kwan”) to set aside out of time a statutory demand dated 24 April 2012 (“Statutory Demand”) issued by the Respondent (“the Bank”).

2.  Under Rule 47 of the Bankruptcy Rules (“the Rules”), a debtor may, within 18 days from the date of service of the statutory demand on him or the date of the appearance of the advertisement of the statutory demand, apply to set it aside. Under Rule 204 of the Rules, the court may, under special circumstances and for good cause shown, extend or abridge the time appointed by these rules or fixed by any order of the court for doing any act or taking any proceeding.

3.  As could be seen later in this Decision, the Statutory Demand was advertised on 5 June 2012. Mr Kwan’s application was made only on 5 February 2013.

Background

4.  The Statutory Demand was based on two judgments against Mr Kwan ie a summary judgment dated 27 November 2003 in HCA 1281/2003 (“1^st Judgment”) and a default judgment dated 29 March 2004 in HCA 2816/2003 (“2^nd Judgment”).The Statutory Demand was in respect of the sum of HK$4,620,927.54, being the total of the then outstanding balance of the 1^st Judgment debt ie HK$3,407,593.53 and the 2^nd Judgment debt ie HK$1,213,334.01.

5.  As far as service was concerned, it was the Bank’s case that its solicitors’ staff had made two attempts to effect personal service of the Statutory Demand on Mr Kwan on 3 & 4 May and 17 & 18 May 2012 respectively at all four of his last known addresses as follows:

(1) Room 2208, Fook Tsui House, Wan Tsui Estate, Chai Wan, Hong Kong (“1^st Premises”);

(2) Units 4-5, Ground Floor, Cornell Centre, No. 50 Wing Tai Road, Chai Wan, Hong Kong (“2^nd Premises”);

(3) Flat E, 10^th Floor, Fook Yee Garden, 278 Prince Edward Road West, Kowloon (“3^rd Premises”);

(4) Flat 1901, 19^th Floor, Block A, Westlands Garden, 4 Westlands Road, Quarry Bay, Hong Kong (“4^th Premises”).

6.  These attempts were detailed in an affidavit of service filed by the Bank’s solicitors’ staff who was instructed to effect personal service of the Statutory Demand on Mr Kwan. Suffice it to say that he had basically followed the steps as provided for in paragraph 2.6 of Practice Direction 3.1. In particular, the second calls on the four addresses were preceded by appointment letters sent by prepaid ordinary post and had not been returned. A copy of the Statutory Demand was enclosed with the appointment letters.

7.  The attempts were all unsuccessful. Thereafter, on 5 June 2012, the Bank advertised in Hong Kong Daily News a notice in Chinese addressed to Mr Kwan that the Statutory Demand had been issued against him. On the same day, the Bank’s solicitors’ staff again sent by prepaid ordinary post a copy of the Statutory Demand to all four addresses.

8.  The Bank then proceeded to present a bankruptcy petition against Mr Kwan on 27 September 2012 in HCB 6351/2012.

9.  Curiously, at the first hearing of the bankruptcy petition on 5 December 2012, Mr Kwan appeared in court and opposed the petition. In his first affirmation filed in HCB 6351/2012, Mr Kwan said the petition came to his notice around mid-October 2012 when he received a letter dated 9 October 2012 from the Official Receiver. The letter was sent to the 1^st Premises. In his affirmation, Mr Kwan gave his address as c/o the 2^nd Premises.

10.  In his second affirmation filed in HCB 6351/2012, Mr Kwan said he did not know of the Statutory Demand or the petition until he received the said letter from the Official Receiver. He also said he did not know about the 1^st Judgment or the 2^nd Judgment until he appeared in the bankruptcy proceedings.

11.  Mr Kwan said he was advised by his legal advisers that the 2^nd Judgment was legally defective. This was because as at the date of the 2^nd Judgment ie 29 March 2004, there was a subsisting bankruptcy order against him in HCB 17740/2003. This bankruptcy order was made only on 11 March 2004 but was annulled by the court on 7 June 2004. By virtue of section 12(1) of the Bankruptcy Ordinance, the Bank could not proceed with any action or legal proceedings against him without leave of the court. Apparently, no leave was obtained when the Bank entered the 2^nd Judgment against Mr Kwan.

12.  Lastly, Mr Kwan complained that the Bank had not acted bona fide. This was because it could have done something, like taking steps to oppose his application to annul the bankruptcy order in HCB 17740/2003 on 7 June 2004. Further, in doing nothing to pursue the 1^st and 2^nd Judgment debts for over 8 years and then issuing bankruptcy proceedings against him in September 2012, the Bank had acted unfairly to him.

13.  In Mr Kwan’s affirmation made in support of the present application, the matters relied upon by him were essentially a repetition of what he had said in his two affirmations filed in HCB 6351/2012 and were two‑fold:

(a) First, the Statutory Demand never came into his hands - he did not know of its existence or its service by advertisement until around mid-October 2012. (“First Ground”)

(b) Second, the 2^nd Judgment was legally defective. The Bank’s failure to pursue the 1^st or 2^nd Judgment debt against him for over eight years was unfair to him and showed the Bank had not acted bona fide. (“Second Ground”)

Discussion

First Ground

14.  Rule 46(2) & (3) of the Rules provides that:-

“(2) 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.

(3) Where the statutory demand is for payment of a sum due under a judgment or order of any court and the creditor knows, or believes with reasonable cause:-

(a) that the debtor has absconded or is keeping out of the way with a view to avoiding service; and

(b) there is no real prospect of the sum due being recovered by execution or other process,

the demand may be advertised in one or more newspapers;…”

15.  Rule 46(2) specifies the steps which the creditor must take in serving the statutory demand on the debtor - the creditor is required to do “all that is reasonable” for the purpose of bringing the statutory demand to the debtor’s attention. 

16.  The extent of this duty was discussed by Barma J in Re Pang Mei Lan May [2005] 1 HKC 319 as follows:

“25. … 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 … 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…”

17.  As Yuen J, as she then was, pointed out in Re Li Wai Man unrep., HCB 211/1999, 1 November 1999 at paragraph 31, what is reasonable is to be judged objectively in light of the information actually or constructively available to the creditor at the time.

18.  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, which in many cases will consist of an advertisement of the statutory demand in a newspaper circulating in Hong Kong: Re Pang Mei Lan May supra at para 28.

19.  On the evidence, this court was satisfied that while personal service of the Statutory Demand was unsuccessful, the Bank had done all that was reasonable for the purpose of bringing the statutory demand to Mr Kwan’s attention.

20.  First, the Bank’s solicitors’ staff had made two attempts to effect personal service of the Statutory Demand on Mr Kwan at all four of his last known addresses. With regard to these addresses, Mr Kwan’s own case was this:

(1) The 1^st Premises – his mother-in-law resided there and it was she who gave him the Official Receiver’s letter dated 9 October 2012.

(2) The 2^nd Premises – Mr Kwan gave this as his correspondence address in the affirmations he filed in court. Mr Kwan also confirmed to the Judge at an adjourned hearing of the petition in HCB 6351/2012 on 10 December 2012 that this was his correspondence address.

(3) The 3^rd Premises – this was the residential address of his wife, but they had been separated.

(4) The 4^th Premises – Mr Kwan’s parents lived there, but not Mr Kwan himself.

21.  As the 2^nd Premises, and arguably the 1^st Premises, could be regarded as Mr Kwan’s correspondence address at the time, it was entirely reasonable for the Bank to attempt personal service on him at those addresses. In the affidavit of service, the Bank’s solicitors’ staff had also confirmed that the Bank had no other contact information of Mr Kwan nor any other address at which personal service could be effected.

22.  Second, as I said earlier, the steps taken to effect personal service on Mr Kwan followed closely the steps provided for in paragraph 2.6 of Practice Direction 3.1.

23.  Third, a copy of the Statutory Demand had actually been sent by post to all the four addresses not once, but twice.

24.  Last but not least, the Bank had advertised a notice of the Statutory Demand in a local Chinese newspaper on 5 June 2012. 

25.  For these reasons, leaving open the question whether Mr Kwan had been evading service of the Statutory Demand, this court was satisfied there was proper service of the Statutory Demand on him under Rule 46(2) by advertisement on 5 June 2012.

Second Ground

26.  The Second Ground was also unmeritorious for the following reasons and could be dealt with briefly.

27.  First, Mr Kwan had taken no action to appeal the 1^st Judgment or to set aside the 2^nd Judgment.  Nor had he put forward evidence to show that he disputed the underlying debts on substantial grounds.

28.  Second, even assuming for the present purpose the 2^nd Judgment was technically defective, there was no challenge at all to the 1^st Judgment which comprised the bulk of the demand in terms of its amount.

29.  It is trite law the fact that a statutory demand has overstated the amount of the debt is not by itself and without more a ground for setting aside the demand provided no injustice is caused to the debtor: Re A Debtor (No 1 of 1987) [1989] 1 WLR 271; Re Kwok Chok Yee [2000] 2 HKC 543; Winterthur Life Insurance Company v Au Oi Fong Susana unrep. HCB 1178 of 1999, 28 November 2000.

30.  In the present case, there was no evidence from Mr Kwan that he had been prejudiced by the over-statement of the amount due in the Statutory Demand. Nor was there any indication that had the Bank only included the amount of the 1^st Judgment debt in the Statutory Demand, he was financially able to and would comply with it.

31.  Third, the Bank’s alleged failure to pursue the 1^st and 2^nd Judgment debts had been satisfactorily explained. Essentially, there had been on and off negotiations between the Bank and Mr Kwan regarding repayment of his outstanding indebtedness in 2005 & 2006 and 2010 & 2011, albeit with no fruitful results. In early 2011, in the course of negotiations, Mr Kwan even provided to the Bank his Tax Assessments for the years 2009/2010 and 2010/2011, and calculations of his Salaries Tax for 2007/2008 and 2008/2009 to show his earnings in Hong Kong.  All these tend to show that Mr Kwan did have knowledge of his indebtedness to the Bank.

32.  In the view of this court, rather than having acted unfairly and mala fide, the Bank had been acting more than fairly to Mr Kwan in refraining from initiating bankruptcy proceedings against him until 2012.

33.  In these circumstances, the Second Ground must also fail.

34.  There being no proper ground to set aside the Statutory Demand, there was a fortiori no good cause for extending time under Rule 204.

Disposition

35.  For the reasons aforesaid, this court would make the following orders:

(1) The application dated 5 February 2013 to set aside the Statutory Demand be dismissed.

(2) Pursuant to Rule 48(7), the Respondent be authorized to present a bankruptcy petition against the Applicant forthwith.

36.  There would also be an order nisi that costs of and occasioned by the application be to the Respondent to be taxed if not agreed and paid forthwith.