RE NG CHI WO

HCB2819/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.2819 OF 2003

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CREDITOR'S BANKRUPTCY PETITION ON FAILURE
TO COMPLY WITH A STATUTORY DEMAND FOR
A LIQUIDATED SUM PAYABLE IMMEDIATELY AND
PURSUANT TO SECTION 6 OF THE
BANKRUPTCY ORDINANCE (CAP.6)

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J U D G M E N T

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THE DEFAULT JUDGMENT

1. On 10 November 2001, the petitioner commenced proceedings in the District Court against Wing Fat Factory Limited ("Wing Fat"), the Bankrupt and two other individuals in DCCJ19712/2001. The petitioner claimed against Wing Fat under various invoices for goods sold and delivered in the total sum of HK$594,100.75. The Bankrupt and the other two defendants, who were directors of Wing Fat, were sued under a personal guarantee purportedly executed by them on 4 October 2000 ("the Guarantee"). The Bankrupt's address stated in the Guarantee is at Flat 6, 2/F., Po Tai House, No.8 Tam Kon Shan Road, Tsing Yi ("the 1st Tsing Yi Address").

2. On 11 December 2001, the petitioner purported to serve the writ of summons on the Bankrupt by insertion through letter box at the 1st Tsing Yi Address. No acknowledgement of service was filed.

3. On 5 February 2002, default judgment was entered against the Bankrupt on the sum claimed ("the Default Judgment").

BANKRUPTCY PROCEEDINGS

4. On 9 August 2002, the petitioner served on the Bankrupt a statutory demand in respect of the judgment debt by way of substituted service, the earlier attempts to serve the demand on the Bankrupt personally having failed. The demand was not met.

5. On 14 February 2003, the petitioner presented this petition. Attempts to serve the petition personally on the Bankrupt had likewise failed. On 26 March 2003, the petitioner obtained an order for substituted service of the petition. Substituted service was then effected on 28 March 2003.

6. The hearing of the petition came before the master on 9 April 2003. The Bankrupt was absent. The master then made a bankruptcy order against him.

APPLICATIONS

7. On 10 November 2003, the Bankrupt took out two applications :

(1) to annul the bankruptcy order pursuant to section 33 of the Bankruptcy Ordinance ("the Ordinance") ("the Section 33 Application"); and

(2) to compel the Official Receiver to allow him to use the Official Receiver's name for the purpose of setting aside the Default Judgment pursuant to section 83 of the Ordinance ("the Section 83 Application").

THE SECTION 33 APPLICATION

8. I will first deal with the Section 33 Application.

9. The Bankrupt is relying on section 33(1)(a) of the Ordinance which enables the court to annul a bankruptcy order if it at any time appears to the court that on any grounds existing at the time the order was made, the order ought not to have been made.

10. The Bankrupt contends that the bankruptcy order ought not to have been made by the master on 9 April 2003 on two principal grounds :

(1) The purported substituted service of the statutory demand and petition is bad. (I will call this "the Service Ground".)

(2) The Default Judgment that gave rise to the judgment debt was irregularly obtained. (I will call this "the Irregularity Ground").

They are discussed in turn below.

THE SERVICE GROUND

(1) Service of the statutory demand

11. I first deal with the service of the statutory demand.

(a) The law

12. Rule 46(2) of the Bankruptcy Rules requires a creditor to 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.

13. Whether a creditor has done all that is reasonable must be judged objectively but in the light of the information actually or constructively available to the creditor at the time of the service. The rule clearly envisages personal service if practicable in the particular circumstances. If personal service is impracticable (and there must be good reasons to demonstrate that that is the case), other modes of service are permissible provided that they are reasonable within the meaning of the rule : see Re Lam Lai Wah Susanna [2002] 4 HKC 334, para.22 at pp.341-342.

(b) Failed attempts of personal service

14. Here, the attempts to effect personal service of the statutory demand on the Bankrupt were made at two addresses, namely :

(1) The 1st Tsing Yi Address.

(2) Mezzanine, 197 Tai Kok Tsui Road, Kowloon ("the Tai Kok Tsui Address").

15. The 1st Tsing Yi Address, as noted above, was stated in the Guarantee to be the Bankrupt's address. The petitioner apparently obtained the Tai Kok Tsui Address from the company search done on Wing Fat. According to the search, the Tai Kok Tsui Address was stated as the Bankrupt's address.

16. On 4 July 2002, the process server of the petitioner's solicitors attempted but failed to effect personal service of the statutory demand on the Bankrupt at the Tai Kok Tsui Address and the 1st Tsing Yi Address. On both occasions, nobody answered the door.

17. On 10 July 2002, the process server went to the Tai Kok Tsui Address again. But again nobody answered the door. He then went to the 1st Tsing Yi Address and was advised by a male adult answering the door that no such person as the Bankrupt resided there.

18. On 18 July 2002, a letter with copy of the statutory demand was sent to the Tai Kok Tsui Address and the 1st Tsing Yi Address respectively for the purposes of fixing an appointment to serve the statutory demand on the Bankrupt. The letter sent to the 1st Tsing Yi Address was returned marked "Addressee Unknown".

19. On 26 July 2002, the process server attended the Tai Kok Tsui Address pursuant to the appointment in the letter sent on 18 July 1002. Again, nobody answered the door.

(c) Advertisement

20. On 9 August 2002, the statutory demand was advertised once in Ming Pao Daily Newspaper. Further, the statutory demand was sent to the Tai Kok Tsui Address by first class mail.

21. On 30 November 2002, the process server attended the Tai Kok Tsui Address and was advised by a male adult answering the door that no such person as the Bankrupt lived there. He further told the process server that he moved in for three weeks and he had no knowledge of the whereabouts of the previous tenants.

(d) The Bankrupt's case

22. The Bankrupt's case is that he has never resided at the 1st Tsing Yi Address at all. He had not executed the Guarantee. Somebody had forged his signature on it. And he did not know why the 1st Tsing Yi Address was stated thereat as his residential address. His residential address is and was at all material times Flat 6, 12/F., Po Tai House, No.8 Tam Kon Shan Road, Tsing Yi ("the 2nd Tsing Yi Address"). The petitioner has not adduced any evidence to contradict the Bankrupt's allegation that he has never resided at the 1st Tsing Yi Address.

23. It is the Bankrupt's case that the Tai Kok Tsui Address was the registered business address of his former company, Wah Tat Trading Company. He had ceased working there since February 1999, the Company having ceased business at about the same time. That may well be the case. However, the Bankrupt does not deny that the Tai Kok Tsui Address was given as his address in the latest company's return of Wing Fat at the time.

(e) Whether the petitioner had done all that was reasonable?

24. The undisputed evidence before me suggests that the Tai Kok Tsui Address was the Bankrupt's usual and last known address at the time when the petitioner attempted to effect personal service of the statutory demand on him. (As I understand Mr Chong, counsel for the Bankrupt, he is not contending otherwise.) It was only after attempts to effect personal service at this address had failed that the petitioner resorted to newspaper advertisement. I fail to see how the petitioner can be criticized for not having done all that was reasonable in the circumstances to bring the statutory demand to the Bankrupt's attention.

25. Mr Chong, however, submits that what the petitioner had done was not sufficient. His argument runs like this.

26. The petitioner had previously on 19 February 2001 commenced DCCJ3531/2001 against : (a) Wing Fat for HK$170,986.25 in respect of two invoices for goods sold and delivered Wing Fat; and (b) the Bankrupt and the same individuals for the same sum under the Guarantee. On 9 March 2001, Messrs Francis Kong & Co. ("FK") purportedly filed an acknowledgment of service for all the four defendants. Mr Chong submits that when the petitioner's solicitors sought to effect service of the statutory demand on the Bankrupt in July 2002, they should have written to FK to confirm if they had instructions to accept service on behalf of the Bankrupt. Having failed to do so, the petitioner had not done all what was reasonable in the circumstances under Rule 46(2) of the Bankruptcy Rules.

27. Mr Chong's submission ignores completely two important facts. First, shortly before the petitioner commenced DCCJ19712/2001, its solicitors had written to FK on 3 and 7 November 2001 to see if FK had instructions to act for, inter alia, the Bankrupt. There was no reply from FK. This obviously suggested that FK might not be acting for the Bankrupt any further. Secondly and perhaps more importantly, it is the Bankrupt's case (unchallenged by the petitioner) that FK in fact did not have instructions to act for him in DCCJ3531/2001. In the circumstances, what is the purpose of asking the petitioner to make inquiry with FK, which would certainly yield no result at all?

28. I am unable to accept Mr Chong's submission. In my view, the petitioner has clearly satisfied Rule 46(2).

(2) Service of the petition

29. I now come to the petition. As noted above, the petition was presented on 14 February 2003. Between 21 February and 14 March 2003, attempts to serve the petition personally on the Bankrupt at the Tai Kok Tsui Address and the 1st Tsing Yi Address all failed. On 14 March 2003, the petitioner's solicitors caused an updated company search to be done on Wing Fat. The Tai Kok Tusi Address remained the Bankrupt's address on record.

30. On 26 March 2003, the petitioner obtained an order for substituted service. Pursuant to that order, substituted service of the petition was effected on 28 March 2003 by sending a sealed copy of the petition to the Tai Kok Tsui Address and the 1st Tsing Yi Address and by newspaper advertisement.

31. In my view, the Tai Kok Tsui Address remained the Bankrupt's usual and last known address at the time of the service of the petition. What the petitioner had done before obtaining the order for substituted service accorded with the normal practice. In the circumstances, the substituted service is good.

(3) Conclusion

32. For the above reasons, I rule that service of both the statutory demand and the petition is good. The Service Ground fails.

THE IRREGULARITY GROUND

33. I next turn to the Irregularity Ground.

34. The Default Judgment, contended by the Bankrupt, is irregular on the ground that the purported service of the writ of summons was defective.

35. Order 10, rule 1(2) of the Rules of the District Court enables the plaintiff to serve the writ of the defendant by, inter alia, insertion through letterbox at his usual or last known address. The date of service of the writ served by insertion through letterbox shall be deemed to be the seventh day after insertion, unless the contrary is shown : Order 10, rule 1(3).

36. However, service through letterbox took effect when the defendant had notice of proceedings and not on mere delivery. The seven-day rule was a working presumption and was rebuttable : see Philip Securities (HK) Ltd v. Lam Chi Bin Stanley [2001] 1 HKC 432.

37. Here, the writ of summons for DCCJ19712/2001 was served by insertion through letterbox at the 1st Tsing Yi Address on 19 February 2001. The unchallenged evidence is that the Bankrupt has never resided at that address. Accordingly, he did not know and indeed could not have known about the action at all. The presumption under Order 10, rule 1(2) is rebutted. The Default Judgment obtained in such circumstances is clearly irregular. The weight of the authorities suggests that it is liable to be set aside without consideration of the merits of the Bankrupt's defence to the claim.

38. Mr Chan, counsel for the petitioner, nevertheless asks me to consider the merits of the Bankrupt's defence. He submits that if his defence is unmeritorious, then there is really no point in annulling the bankruptcy order.

39. I am unable to accede to this request. In my view, as a matter of principle, it would be wrong to allow the bankruptcy order to stand when the Default Judgment which gave rise to the judgment debt is liable to be set aside and will be set aside upon application on the ground of irregularity. The substratum of the judgment debt that triggered the bankruptcy proceedings has collapsed. Without this proper and necessary base, all the subsequent steps taken in prosecuting the bankruptcy proceedings can no longer stand.

40. For those reasons, I will rule in favour of the Bankrupt on the Irregularity Ground and allow the Section 33 Application.

THE SECTION 83 APPLICATION

41. In light of my ruling on the Section 33 Application, the Section 83 Application has become academic. I do not propose to deal with it any further.

ORDERS

42. I will make the following orders on the Section 33 Application :

(1) The bankruptcy order dated 9 April 2003 be annulled.

(2) The statutory demand and the petition be set aside.

(3) A notice of annulment be advertised in the Gazette by the Official Receiver, such costs to be borne by the petitioner.

(4) There be an order nisi that the petitioner do pay the Bankrupt costs of the application, to be taxed if not agreed.

43. I will not make any order on the Section 83 Application. On the question of costs, the bankrupt and the Official Receiver are to submit a consent summons within seven days from the date of handing down of this judgment, failing which summons they should write to court (copied to the other side), setting out their submissions within seven days thereafter. I will then deal with the question of costs on paper.