WING LUNG BANK LIMITED v. WONG YIN MING SOPHIA

IN THE COURT OF APPEAL

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JUDGMENT

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Clough J. delivering the judgment of the court:

1. These appeals by the Wing Lung Bank Limited ("the Bank") are against the orders of Nazareth, J., made on the 27th March 1986 in separate bankruptcy proceedings in which the Bank was the petitioning creditor, rescinding the receiving orders which had been made respectively against each of the above named Respondent debtors ("the debtors") on the 18th March 1985. On the 26th June 1986 we dismissed both appeals with costs, reserving our reasons to be given in this judgment. The appeals raise an issue on the effect of service by post of a bankruptcy notice which is of importance to the Bank and other petitioning creditors in bankruptcy proceedings.

2. The debtors are husband and wife and the bankruptcy proceedings resulting in these appeals are concerned with the same facts and issues mutatis mutandis. The two appeals can therefore be conveniently dealt with together.

3. On the 31st July 1984 the Bank obtained final judgments against each of the debtors for the same substantial sums. The judgments were not satisfied. Accordingly, on the 8th January 1985, bankruptcy notices founded on the judgment debts were issued at the request of the Bank. On the 16th January 1985 the Bank's solicitors sent sealed copies of the respective bankruptcy notices by ordinary post addressed to each of the debtors at c/o Room 1001-1003, Houston Centre, Tsimshatsui, Kowloon.

4. In taking this course the Bank was relying on the combined effect of rules 48 and 59 of the Bankruptcy Rules and Order 10 rule 1(2)(a) of the Rules of the Supreme Court. Rules 48 and 59 of the Bankruptcy Rules read with section 9(1) of the Bankruptcy Ordinance (Cap.6) provide that a bankruptcy notice and petition may be served in the same manner as a writ. It follows that Rules of the Supreme Court relating to the service of a writ are applicable in relation to the service of a bankruptcy notice and petition and section 99(1) of the Bankruptcy Ordinance requires the rules and practice of the Supreme Court to be applied in relation to such service so far as such rules and practice may be applicable and not inconsistent with the provisions of the Ordinance.

5. Accordingly in each of the instances now under consideration the Bank was entitled to serve the bankruptcy notices and their petitions by post in accordance with Order 10 rule (1)(2)(a) by sending a copy of each of those documents by ordinary post to each of the debtors at their usual or last known address. This method of service has commonly been adopted in practice in Hong Kong without challenge and was rightly accepted by Mayo, J. in Re WONG Min-fook, ex parte Caltex Oil Hong Kong Ltd and Re CHIK Yip-fai, ex parte LEE Ho-kee (1) when considering applications to amend creditors' petitions.

6. After the posting of the bankruptcy notices to the debtors on the 16th January 1985 a solicitor's clerk employed by the Bank's solicitors made two affirmations on the 22nd January 1985 in the form appropriate to prove service by post of each of the bankruptcy notices under Order 10 rule 1(2)(a).

7. The Bank relied on due service of the bankruptcy notices pursuant to Order 10 rule 1(2)(a) and upon rule 3(a) which provides that unless the contrary is shown the date of such service shall be deemed to be the seventh day (ignoring Order 3, rule 2(5)) after the date on which the copy of the bankruptcy notice was sent to the address in question. On this basis the date of deemed service of the notices on the debtors, in the absence of any evidence to the contrary, would have been the 23rd January 1985. The notices were in the prescribed form requiring compliance "within seven days after service of this notice on you excluding the day of such service". Accordingly, on the footing that the date of service was the 23rd January 1985, the debtors had until the 30th January 1985 to comply with the notices.

8. There having been no compliance with the bankruptcy notices, the Bank presented its creditor's petitions on the 8th February 1985. The petitions were in common form mutatis mutandis. In reliance inter alia on sections 3(1)(g), 5 and 6(1)(c) of the Bankruptcy Ordinance the petitions were founded on the allegation that each debtor -

".... within 3 months before the date of the presentation of this Petition has committed the following act of bankruptcy, namely, failed on or before the 30th January 1985 to comply with the requirements of a Bankruptcy Notice filed herein ..... and duly served on him/her by sending the same to him/her by ordinary post on the 16th January 1985 ......"

9. The debtors did not file a notice to show cause against the petitions pursuant to rule 68 of the Bankruptcy Rules nor did they appear on the 18th March 1985 when the hearings of the petitions took place. Accordingly the court, which was evidently satisfied, pursuant to section 9(2) of the Bankruptcy Ordinance and rule 69 of the Bankruptcy Rules, with the sufficiency of the evidence of the debtors' debt, of the service of the petition and of the act of bankruptcy alleged in the petitions, made a receiving order against each of the debtors.

10. On the 17th April 1985 both the debtors applied under section 98 of the Bankruptcy Ordinance and rule 80 of the Bankruptcy Rules for the rescission of the receiving orders. The notice of application appears to have been amended in the case of the husband so as to include an application under section 33(1) of the Bankruptcy Ordinance to annul his adjudication. But this was evidently a mistake because the record of the proceedings before Nazareth, J. on the 27th March 1986 indicates that counsel for the debtors informed the judge that the debtors had not in fact been adjudged bankrupt.

11. There were two grounds for the applications to rescind the receiving orders. The first ground was that the debtors had not received the bankruptcy notices and had therefore not committed the acts of bankruptcy which founded the petitions. There was a second ground which has no relevance to these appeals.

12. The evidence in support of the first ground for the applications was contained in an affirmation of the husband and an affidavit of the wife in common terms. Their evidence was that they had never received the bankruptcy notices and had had no knowledge of the bankruptcy proceedings or of the receiving orders until the evening of the 31st March 1985. They alleged that on that evening the husband's sister in law Ellena So had informed his wife that Ellena So had seen a reference to the receiving orders in the Sing Tao Yat Pao of the 29th March 1985. They asserted that as a result of this information they had consulted their solicitor and that by the 4th April 1985 they had instructed him to apply for the rescission of the receiving order.

13. Both the debtors admitted that the address ("the first address") to which the bankruptcy notices had been sent had been the address of their partnership business, of a limited company belonging to them and of a limited company in which the husband held shares. However their evidence was that although the registered address of their partnership under the Business Registration Ordinance (Cap.310) and the registered addresses of the limited companies had been the first address until the 5th September 1984, vacant possession of the premises at the first address had been surrendered to the landlord of those premises when all three enterprises moved out on the 31st August 1984 upon the expiration of the tenancy of the premises which had been held by the partnership.

14. According to the evidence of the debtors, steps were taken to have mail addressed to them at the first address redirected to their then residential address ("the second address") in Kowloon. They alleged that the Post Office redirected all such mail until about the end of November 1984, but that thereafter neither the Post Office nor anyone else had directed any mail or the bankruptcy notices to the debtors at the second address or any other address.

15. The hearing of the applications on the first ground took place on the 27th April 1986. No application was made to cross-examine the debtors. The solicitor appearing for the Bank submitted that the debtors' evidence did not show that the debtors themselves had moved from the first address when vacant possession of the premises at that address was given up by their enterprises. The judge was not impressed by this submission and pointed out that it was difficult to see how vacant possession of the premises in question could have been surrendered to the landlord while the debtors somehow remained in possession. In the absence of any attempt to cross-examine the debtors he rightly accepted that their evidence established on the balance of probabilities that they had never received the bankruptcy notices.

16. Counsel for the debtors had submitted inter alia that if the debtors had not received the bankruptcy notices they could not have committed the acts of bankruptcy upon which the petitions were founded. Having accepted the evidence of the debtors regarding the non-receipt of the bankruptcy notices, the judge also found in favour of the debtors regarding the acts of bankruptcy. He observed: -

"The bankruptcy notices were therefore never served and so there could not have been any acts of bankruptcy upon which the Receiving Orders were founded."

He granted the debtors' applications for rescission of the receiving orders on the first ground and therefore did not find it necessary to consider the second ground.

17. The Bank's grounds of appeal against the judge's orders were (1) that the judge erred in law in holding that the bankruptcy notices had not been properly served on the debtors; (2) that he ought to have held that, on the evidence available to the court when the receiving orders were made, the bankruptcy notices had been properly served on the debtors; and (3) he failed to have regard to section 8 of the Interpretation and General Clauses Ordinance (Cap.1). By its notices of appeal the Bank sought an order from this court setting aside the order of Nazareth, J. and remitting the matter to the High Court for further consideration of the debtors' applications for the rescission of the receiving orders and an order that in the meantime the receiving orders should stand.

18. No respondent's notice was given by the debtors but in the course of her oral submissions at the hearing of these appeals, counsel for the debtors sought leave to take the point that the service of the bankruptcy notices was irregular because the bank had not made proper inquiries in all the circumstances before assuming that the first address of the debtors was their "usual or last known address". This point had not been taken below and we refused such a late application to take it.

19. Counsel for the Bank, in a clearly formulated argument, first submitted that, in holding that the bankruptcy notices had never been served on the debtors, the judge had confused the mode of service with the time of service and had confused service with receipt. He contended that, whether the matter be considered in the light of the provisions of Order 10 rule 1(2) and (3) alone or in the light of those provisions in conjunction with the deeming provisions of section 8 of the Interpretation and General Clauses Ordinance (Cap.1), a distinction is to be drawn on the one hand between the validity of service authorised to be effected by ordinary post under Order 10 rule 1(2)(a) and, on the other hand, the date when that service is deemed under Order 10 rule 3(a) to have been effected unless the contrary is shown.

20. Counsel contended that it was erroneous to conclude that because the copies of the bankruptcy notices were not received by the debtors it followed that there had been no valid service under Order 10 rule 1(2)(a). On the contrary, he contended, the service was valid on the evidence before the court when the receiving orders were regularly made.

21. We agree that on the hearing of the petitions the service of the bankruptcy notices was rightly deemed to have been regularly effected in accordance with the relevant Bankruptcy Rules and Order 10 rule 1(2)(a). The copies of the notices sent to the first address of the debtors as their usual or last known address, were not returned to the Bank's solicitors through the post undelivered to the addressee and the court made regular receiving orders on being satisfied with prima facie evidence of such service in the absence of any evidence to rebut the deeming provision in Order 10 rule 3(a) regarding the date of service of the bankruptcy notices. On this basis, when the petitions were heard, the bankruptcy notices were rightly held to have been duly served and the relevant acts of bankruptcy alleged in the petitions were rightly deemed to have been committed.

22. In arriving at this conclusion we do not consider that there is room for the application of section 8 of the Interpretation and General Clauses Ordinance. Section 2 of that Ordinance provides inter alia that its provisions shall apply to any other Ordinance (defined by section 3 to include subsidiary legislation made under any Ordinance) save where the contrary intention appears from the context of that other Ordinance. In our judgment such a contrary intention is to be found in the context of Order 10 rule 1(2) and (3) read in conjunction with Order 13 rule 7(3), (4) and (5).

23. Order 10 rule 1(2)(a), as applied to a bankruptcy notice by the relevant Bankruptcy Rules, provides for the service of a bankruptcy notice within the jurisdiction by the sending of a copy of the notice to the debtor by ordinary post at his usual or last known address. Order 10 rule 3(a) provides that where such a notice "is served in accordance with paragraph (2) -

24. Order 10 rule 1(3)(b), as applied to a bankruptcy notice served by ordinary post, requires the affidavit of service proving due service of the notice to contain a statement to the effect that (i) in the opinion of the petitioner the copy of the notice sent to the address in question would have come to the knowledge of the debtor within seven days after being sent; and (ii) the copy of the notice has not been returned to the petitioner through the post undelivered to the addressee.

25. The latter requirement implies that if a bankruptcy notice is returned undelivered through the post, then it may not have been duly served. This construction is supported by Order 13 rule 7(3), (4) and (5) which make it clear that if a writ is returned through the post undelivered to the addressee it is either to be regarded as if it "has not been duly served" (rule 7(3)(a)) or to "be treated as having been duly served" (rule 7(5)(b)), depending on the circumstances. It follows that if a bankruptcy notice is proved at the hearing of the petition to have been served in accordance with Order 10 rule 1(2)(a) and not to have been returned undelivered through the post, then there is sufficient evidence of service and, unless the contrary is shown, there is sufficient evidence from which to calculate the date of that service.

26. Having satisfied us that the receiving orders had been regularly made on sufficient prima facie evidence of service of the bankruptcy notices and of the commission of the relevant acts of bankruptcy by the debtors, counsel for the Bank went on to submit that the hearing of the applications to rescind the receiving orders were not re-hearings of the petitions, and that if the receiving orders were rescinded the effect of that rescission was merely to leave the petitions to be re-heard. He also submitted that if this court accepted that the judge had wrongly held that the bankruptcy notices had not been duly served, then the debtors' applications for the rescission of the receiving orders should be remitted to the court below for a re-hearing at which the Bank would apply to cross-examine the debtors on their evidence of non-receipt of the bankruptcy notices.

27. We were unable to accede to these arguments. Although the judge may have used too wide an expression when he observed in an extempore judgment that the bankruptcy notices had not been "served", he was making his observations in a context where he had rightly held on the evidence that the debtors had satisfied him that they had not in fact received the notices. They had therefore rebutted the deeming provision in Order 10 rule 1(3)(a) regarding the date of service of the notices. It follows that it was apparent to the judge that the notices could not be deemed to have been served on the debtors on the seventh day after posting or on any other specific date. It was not therefore possible to establish that the debtors had failed to comply with the bankruptcy notices, respectively directed to each of them, within seven days of the service of those notices on them.

28. It followed that the debtors had established at the date of the hearing of their applications for the rescission of the receiving orders on the 27th March 1986 that they had not committed the respective acts of bankruptcy upon which each of the petitions was based. Moreover rule 47 of the Bankruptcy Rules provides that a bankruptcy notice must be served within one month from its issue unless time has been extended under section 100(4) of the Bankruptcy Ordinance. The true facts had admittedly only been established by evidence filed after the receiving orders had been regularly made, but this is permissible, in relation to the actual state of affairs at the date of the receiving order, when an application for rescission of a receiving order is made under section 98 of the Ordinance: see In re Harry Dunn (2) where the application was for the rescission of the receiving order as well as for the annulment of the adjudication.

29. Furthermore it is settled practice that the jurisdiction conferred on the court by section 98 of the Bankruptcy Ordinance (corresponding to section 108 of the Bankruptcy Act 1914) is a jurisdiction to rehear and to rescind or vary orders made in the exercise of its bankruptcy jurisdiction. It is also settled that the jurisdiction conferred on the court under section 98 is, in a proper case, almost without limit: see William on Bankruptcy, 19th Edition at pp.42 and 457. In the present case there has in effect been a rehearing of the petitions at the hearing of the applications for rescission and the judge was clearly right in concluding that this was a proper case for rescission because the acts of bankruptcy, which were the foundation of the petitions, had been proved not to have been committed.

30. The situation is not truly analogous to that which arises where a defendant who claims that he was not duly served by post applies under Order 13 rule 9 to set aside a default judgment. There the defendant is applying to set aside the judgment and obtain leave to defend the action. The plaintiff's cause of action is not affected. In the present bankruptcy proceedings the debtors were applying to rescind the receiving orders and at the same time destroy the foundation for the petitions. They succeeded in doing this. We accept that the correct procedure on the part of the debtors would have been to apply, as was done in In re Harry Dunn's (2) case, for the dismissal of the petitions in addition to applying for rescission of the receiving orders. However in the circumstances of the present case a pro forma application for dismissal of the petitions would have sufficed because the foundation of the petitions has been destroyed in the rescission proceedings which were procedurally a re-hearing of the petitions. Under the circumstances we propose to vary the order made on this appeal by adding an order dismissing the petitions but giving liberty to the Bank to apply within fourteen days if it wishes to oppose the additional order.

31. When dismissing the appeal with costs we did not disturb the judge's order that the debtors' costs of the rescission proceedings be paid by the Bank. We accepted on the appeal that the receiving orders had been made regularly on sufficient prima facie evidence of service by post. However the Bank knew that the debtors were partners and yet they served the bankruptcy notices by post at a business address of the debtors more than five months after obtaining final judgment against the debtors without any further enquiry or search in the register of businesses kept by the Commissioner of Inland Revenue under the Business Registration Ordinance. Such a search would have informed them that the first address had ceased to be the address of the debtors' partnership on the 5th September 1984.

32. Furthermore the Bank, whose solicitors had been informed that the debtors would apply for costs if they succeeded in having the receiving orders rescinded on the service issue, resisted the application on that issue and yet made no attempt to challenge the evidence of the debtors by cross-examination. In all the circumstances we did not consider that the judge's exercise of discretion could be faulted when he decided that the costs of the application for rescission should follow the event.

33. Before parting with this matter we invite the attention of the rule making authority for the Bankruptcy Rules to what we suggest is the unsatisfactory position where bankruptcy notices and petitions may be served by post. We venture to doubt whether this departure from the English legislation was contemplated when Order 10 rule 1(2) and (3) were introduced. Be that as it may we consider that, since a bankruptcy notice and a creditor's petition can involve consequences of such a serious and even penal nature, consideration should be given to amending the Bankruptcy Rules so that personal service of such documents is again required.

(1)    [1986] HKLR 177

(2)    [1949] 1 Ch. 640 (C.A.)