RE HUANG HAICHAO

HCB 8114/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8114 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. The petitioner petitioned for the debtor’s bankruptcy; it was based on a judgment debt of about $12.7 million (the judgment was dated 25 June 2013). At the end of the hearing on 16 July 2014, a usual bankruptcy order with costs was made. Below are the reasons for the order.

2. The affirmations filed on the debtor’s behalf (the debtor himself did not file any affirmation) raised two grounds of opposition:

(a) the judgment was under appeal;

(b) service of the statutory demand was defective.

3. By the 16 July 2014 hearing, the debtor’s appeal was already dismissed by the court of appeal (on 12 March 2014).  The debtor sensibly (and correctly) no longer included this ground in his written submissions; it is wholly unmeritorious.

4. The only remaining ground of opposition was thus based on the alleged defective service of the statutory demand.  More particularly, the debtor contended (through the deponent of the affirmations) that:

(1) the debtor was not present in Hong Kong at the time of service of the statutory demand (or when it was later advertised in a Hong Kong newspaper (see para 16(1) below));

(2) the debtor no longer resided at the address on which service of the statutory demand was attempted.

The debtor further alleged that the petitioner knew of sub-para (2) above at the time of attempted service (but there was no such allegation as regards sub-para (1) above).

5. It should be noted that neither the affirmations’ deponent, nor the debtor’s written submissions, contended that the debtor was unaware of the statutory demand, or indeed the petition itself.

6. In relation to the question of service of the statutory demand, heavy reliance has been placed by the debtor on an observation made in the decision of Re Cheung Hoi Chu, HCB 865 to 868 of 1998 (24 December 1998).  There the court observed:

“In my judgment, requirements as to and proof of service must be strictly adhered to because of the importance of establishing with certainty the period within which a debtor has to comply with the statutory demand” (p 10 thereof).

7. Two points can be made about the above observation in the Cheung Hoi Chu decision.

8. One, the court apparently considered therein the petitioner had not acted entirely fairly against the debtors who were the guarantors of the judgment debt:

(a) the judgment debtor was a company;

(b) as at the date of the statutory demands, no steps to recover the debt had been taken against the company’s co-founder (and majority shareholder);

(c) no steps to recover the debt had been taken against the company’s other founder (and minority shareholder) either;

(d) the debtor company has not been wound up by the petitioner.

9. It was in the above circumstances the court in the Cheung Hoi Chu decision found that:

“… there was no personal service … [of the statutory demand], nor [has there been] an acknowledgement in writing within [r 49(4), Bankruptcy Rules (Cap 6A)] … it is plain [the affirmation of service] falls far short of the requirements of [r 49(5) or (6)]: there was simply no attempt to take steps with a view to serving the demands personally or to bring them to the notice of the Debtors” (p 6 thereof),

and concluded that the attempt at effecting service could only be described as “sloppy” and that such irregularity should neither be tolerated nor encouraged.

10. More importantly, it can be inferred that the above quoted observation was made in relation to how the court’s discretion conferred by r 49(9), Cap 6A should be exercised (see in particular p 11 thereof).  That rule stipulates:

“The court may decline to file the petition if not satisfied that the creditor has discharged the obligation imposed on him by rule 46(2) [the creditor should do all that is reasonable to bring the statutory demand to the debtor’s attention]”.

11. Nothing like that has happened in this petition.  The petitioner has attempted to personally serve the debtor, but he could not be found at the address in Hong Kong last known to the petitioner. Although the affirmations’ deponent referred to addresses in Macau and in Wenzhou China, there is no evidence that the debtor resided there (or could be found there).  On the contrary, service of the statutory demand (and the petition) has been effected on the solicitors who remain on the court record as such (even up to the hearing of the petition) in the action which resulted in the judgment debt.

12. Even more important is the fact that the debtor has not filed any evidence himself (para 5 above is repeated).

13. Secondly, that the court observation in the Cheung Hoi Chu decision was concerned with the court’s discretion is reinforced by the decision of the court of appeal in David C Buxbaum v Samuel-Rozenbaum HK Ltd CACV 141/2005 (10 May 2006).  The judgment of the court of appeal said:

“I would pause first to consider the purpose of rule 46(2). It is obviously to make the debtor aware that a creditor was making a statutory demand on him, so that the debtor could decide e.g. whether to comply with the demand for payment, or to apply to court to set it aside.

The focus of the rule is expressly on ‘bringing the statutory demand to the debtor’s attention’. There is nothing in the rules that makes acceptance or physical receipt of the document by the debtor a condition to the validity of the process.

So the question is whether the statutory demand had been adequately brought to the debtor’s attention. … ” (para 25 to 27 thereof).

The judge of the Cheung Hoi Chu decision, as one member of the court of appeal in the Buxbaum decision, was in agreement with the above.

14. It should also noted that, unlike this petition, the debtor in the Buxbaum decision has in fact filed evidence that he did not know of the statutory demand (which the court of appeal found to be incorrect: para 28 thereof).

15. When deciding whether the debtor herein was aware of the statutory demand, the observation of the court of appeal in Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd and Others CACA 90 to 91 and 93 to 96/2012 (17 September 2013) should be borne in mind.  There it was observed:

“The relevant principles are as set out by Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

‘(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.’

And as Lord Sumption has stated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at §44:

‘There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to[101], the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

“In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.”’” (emphasis supplied) (para 106 to 107 thereof).

16. The above court observations are applicable to this petition.  Besides the matters set out in para 11 & 12 above:

(1) the petitioner advertised the statutory demand in a Hong Kong newspaper on 23 August 2013;

(2) the statutory demand was sent in July 2013, and the petition was sent in November 2013, to the debtor’s solicitors in the action which resulted in the judgment debt;

(3) the petition was served by substituted service by advertisement in a Hong Kong newspaper on 13 December 2013;

(4) the debtor’s solicitors in this petition filed the notice to act on 10 January 2014 (several days before the petition’s first hearing).

It can be inferred that whoever instructed the debtor’s solicitors herein to act in this petition became aware of the petition by:

(a) being informed of it by the debtor’s solicitors in the action which resulted in the judgment debt; and/or

(b) the newspaper advertisement of 13 December 2013.

In either event, the same source of information would likely to have knowledge of the statutory demand as well.

17. Finally, I pause to note that the debtor’s knowledge of the statutory demand is obviously a fact which is privy to him, but no reason has been given for the lack of evidence from him.

18. In view of the circumstantial facts set out above, I consider it proper to draw the adverse inference that the debtor was in fact aware of the statutory demand.

19. Such being the case, and bearing in mind the court observations in the Buxbaum decision, I find no merit in the debtor’s ground of opposition, and reject it.

20. There is no other valid reason to justify dismissing or adjourning this petition.  On the contrary, my discretion ought to be exercised to grant the relief sought.

Other matters

21. The petitioner applied to strike out the affirmations filed on the debtor’s behalf.  This was dismissed at the end of the petition hearing.  The brief reasons appear below.

22. The principal facts deposed to in the affirmations have been set out in para 4 above.

23. I disagree with the petitioner the affirmations are irrelevant and of no probative value because those facts ought to be (and have in fact been) considered when determining whether:

(1) the petitioner has acted in accordance with r 46(2), Cap 6A;

(2) the debtor was aware of the statutory demand;

(3) the court’s discretion conferred by r 49(9), Cap 6A should be exercised in the petitioner’s (or the debtor’s) favour.

That an adverse conclusion has been reached against the debtor (despite those facts) is not a proper reason to strike out the affirmations.

24. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the reasons for judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.