RE WONG KAI KWONG

HCB2647/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.2647 OF 2003

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REASONS FOR JUDGMENT

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Introduction

1. On 21 November 2003, I allowed the application by Mr Wong Kai Kwong for an order (1) that the bankruptcy order made against him dated 23 April 2003 be annulled, (2) that the bankruptcy petition filed on 12 February 2003 and the statutory demand dated 3 June 2002 be set aside, and (3) that a notice of the annulment be gazetted by the Official Receivers at the petitioner's costs, with costs against the petitioner, to be taxed on an indemnity basis if not agreed. I further ordered the petitioner to pay the Official Receiver's costs agreed at HK$20,000.00. These are my reasons.

The petitioner's debts

2. The petitioner's debts arose out of a personal guarantee dated 30 October 1996 and a mortgage and second mortgage dated 1 May 1998 executed by Mr Wong. As at the date of the statutory demand (3 June 2002), the total indebtedness stood at HK$3,455,145.91.

Bankruptcy proceedings

3. On 12 July 2002, a clerk of the petitioner's solicitors was instructed to and did attend Flat C, 1st Floor, Block 6, Beverly Villas, 16 Salle Road, Kowloon ("the Beverly Address") to attempt personal service of the statutory demand on Mr Wong but to no avail. He was told by an adult inmate there that the debtor had already moved out of the Beverly Address three years ago. The clerk nevertheless left an appointment letter to notify Mr Wong that he would come again on 19 July 2002, which he did. On that occasion, nobody answered the door. Pursuant to directions, the clerk then purported to serve the statutory demand on Mr Wong by placing an advertisement of a notice thereof in Sing Pao Daily on 26 July 2002.

4. The petitioner then applied to the master for leave to issue the bankruptcy petition against Mr Wong. In the two affirmations of the clerk filed in support of the application (both dated 12 December 2002), the Beverly Address was said to be the only usual and last known address of Mr Wong. In the event, the master gave leave to issue the petition on 20 December 2002.

5. On 24 February and 4 March 2003, the clerk attended the Beverly Address attempting to serve the petition on Mr Wong personally. Naturally, the attempts were unsuccessful. On 10 March 2003, the petitioner applied to serve the petition on Mr Wong by way of substituted service by placing an advertisement of a notice of the proceedings in Sing Pao Newspaper and by sending a sealed copy of the petition together with a sealed copy order of substituted service at the Beverly Address. In the supporting affirmation of the clerk of the same date, the Beverly Address was again given as the usual and last known address of Mr Wong. On 18 March 2003, the master allowed the application.

6. At the hearing on 23 April 2003, the master made a bankruptcy order against Mr Wong in his absence.

Mr Wong's complaint

7. The principal ground relied on by Mr Wong is that the petitioner had failed to do all that was reasonable to bring the statutory demand to his attention, and failed to take the necessary steps to effect service of the statutory demand and the petition upon him. In short, he complained that the purported service of both the statutory demand and the petition was defective.

8. In his first affirmation filed on 2 May 2003, Mr Wong had this to say :

"My Address - Background Information

13.	All along, the Petitioner, as is apparent from its Affirmations, has only attempted service of documents upon me at the Beverly Address and no other. Indeed, the Petitioner claims that it knows not of any other address where I may be contacted.
14.	I did once upon a time live at the Beverly Address and during the time I resided there the Petitioner properly treated the Beverly Address as my usual address.
15.	However, since about 1996 I have ceased living at the Beverly Address. The Petitioner knew full well that I no longer resided there and knew full well that I had moved out of the Beverly Address since 1996, and especially when they purported to attempt service there as alleged.
16.	The Petitioner provided the mortgage for the property I owned at the Beverly Address. Accordingly, they knew that I sold the property in about 1996 and that I no longer resided at the Beverly Address.
17.	My address was changed to Flat 1 2nd Floor, Block D Forest Hill, No. 1E Kau To Shan, Shatin, New Territories (hereinafter 'the Forest Hill Address'). The Petitioner knew full well that I moved to the Forest Hill Address:-
	a. The Petitioner in fact provided the mortgage to me for the property at the Forest Hill Address;
	b. Indeed one of the debts alleged in the Petition amounting to HK$907,800.65 in fact arises out of the mortgage over the Forest Hill Address;
	c. On the Petitioner's record my address for all bank accounts as well as the mortgage was in fact changed to the Forest Hill Address;
	d. Correspondences sent by the Petitioner to me were addressed to the Forest Hill Address and were received by me there.
18.	Although my property at the Forest Hill Address was sold sometime in August 2001, I continued to use that address and the Forest Hill Address remained on the Petitioner's file as my last known usual address.
19.	Through the Redirection of Mail Service provided by the Hongkong Post, I continued and still continue to receive any mail addressed to me at the Forest Hill Address.
20.	My last known usual address, as far as the Petitioner is concerned, is the Forest Hill Address, and not the Beverly Address as they allege.
21.	The Petitioner knows that I have set up the Redirection of Mail Service with the Hongkong Post and that any mail sent there will reach me.
22.	In fact the Petitioner has all along been sending bank account statements, letters correspondences to the Forest Hill Address, and I have been receiving them via the Redirection of Mail Service without any problems.
23.	There is now produced and shown to me marked exhibit 'WKK-1' copies of a bank statement dated 15th March 2002 and a letter dated 12th April 2002 sent by the Petitioner to the Forest Hill Address and received by me via the Redirection of Mail Service.
24.	By the time of purported attempted service of the statutory demand and/or Petition upon me, the Beverly Address was in fact not recorded on the Petitioner's files as my last known address at all. Apart from the documents in these proceedings, I am not aware of the Petitioner having even sent any documents to the Beverly Address since I, to their knowledge, moved out in 1996.
25.	I of course do not know why the Petitioner then decided to attempt service of documents on me at the Beverly Address when they have known for several years that I would not be found at that address, and have in recent years been sending correspondences to another address, the Forest Hill Address (which does in fact reach me).
26.	It was unreasonable for the Petitioner to serve the statutory demand and/or the Petition at the Beverly Address.
27.	At no time have I been evading service of any documents upon me. If the Petitioner had sent documents to the Forest Hill Address, which as I have said was in fact my last known address as far as the Petitioner is concerned, I verily believe that I would have received the same via the Redirection of Mail Service.
28.	Indeed, I still have bank accounts with the Petitioner. The bank statements continue to be sent to the Forest Hill Address and I continue to receive them via the Redirection of Mail Service. There is now produced and shown to me marked exhibit 'WKK-2' copy of a recent bank statement addressed to me at the Forest Hill Address.
29.	I verily believe that the Petitioner did not attempt to mail me any of the documents (statutory demand or Petition) via the Forest Hill Address.
30.	In the premises I have not been served with the statutory demand nor the Petition."

9. It transpired that after it had obtained the bankruptcy order, the petitioner wrote a letter dated 25 April 2003 to Mr Wong sent not to the Beverly Address but to the Forest Hill Address, advising him of the order.

10. The assistant manager of the petitioner, Mr Lau Chung Cheung dealt with Mr Wong's complaints in his affirmation filed on 17 July 2003 thus :

"	3.	At the time when the Statutory Demand was issued on 3rd June, 2003, the Petitioner had the following addresses of the Debtor, namely:-
		(i) Flat 1 on 2nd Floor, Block D, Forest Hill, No.1E Kau to Shan Road, Shatin, New Territories, Hong Kong ('Forest Hill');
		(ii) Unit 1412-13, 14th Floor, Peninsula Square, 18 Sung On Street, Hunghom, Kowloon, Hong Kong, ('Peninsula Square');
		(iii) Flat C, 1st Floor, Block 6, Beverly Villas, No. 16 La Salle Road, Kowloon, Hong Kong, ('Beverly Villas')
	4.	Concerning the Forest Hill address, the Petitioner knew full well that the same had already been sold by the Debtor on 10th August, 2001. The same address is now alleged by the Debtor as his last known usual address in paragraph 18 of the Affirmation. I was advised by my solicitors that the address was in fact not 'last known and usual' since it was last known to the Bank that the Debtor no longer resided there and that personal service of the statutory demand on the Debtor could not be effected at that address. There is now produced and shown to me marked exhibit 'LCC-1' being copy of the land search record of such address.
	5.	Concerning the Peninsula Square address, the Petitioner also had full knowledge that the property had been sold by way of mortgagee sale on 18th April, 2001. Once again, I was advised by my solicitors that personal service of statutory demand could not be effected at this address. There is now produced and shown to me marked exhibit 'LCC-2' being copy of the land search record of such address.
	6.	Concerning the Beverly Villas address, the property was owned by the Debtor and his wife, Miss Li Wai Fong as joint tenants. The property was mortgaged to the Petitioner on 14th January, 1995 and was released/discharged by the Debtor on 7th August, 1996 (not for sale but only for the full repayment of the mortgage indebtedness). The Debtor did not inform the Petitioner about any sale of this property. I was advised by my solicitors and have reasons to believe that the Debtor was still living inside this residential premises and this address was the last known and usual address that personal service of the statutory demand could have been effected on the Debtor. There is now produced and shown to me marked exhibit 'LCC-3' being copy of the land search record of such address.
	7.	It was upon such belief that the Petitioner had attempted personal service of the Statutory Demand as well as the Petition on the Debtor at the Beverly Villas address.
	8.	The Debtor was well aware of the sale of the above 3 mortgaged properties but he has never informed or left any address to the Petitioner for any settlement of account thereafter. The Debtor has not informed the Petitioner about the change of his address for 23 months and even up the date of this Affirmation since the sale of the Forest Hill property on 10th August, 2001.
	9.	At the material times of the service of the Statutory Demand and/or the Petitioner herein, the Petitioner through its solicitors had done all that is reasonable and practical to cause service of the Statutory Demand and/or the Petition, namely, by obtaining from the Court substituted orders for service, as the Debtor did not give any address to the Petitioner. By leaving no address to the Petitioner for settlement of accounts, the Debtor has been evading the process of recovery of shortfall on sale of properties by the Petitioner.
	10.	The Debtor alleged that he has set up a mail re-direct service at the Forest Hill address. This was in fact unknown to the Petitioner. The Debtor has never informed the Petitioner of such arrangement. If the Debtor has a genuine address for service, he should have notified the Petitioner of such address in order to be contacted. However, the Debtor failed to do so and even failed to provide a genuine corresponding address in Affirmation and giving no reason therein. By such conduct, the Debtor has evinced an intention to evade service of statutory demand and/or other legal process.
	11.	I am also advised by my solicitors that even if the Petitioner had attempted service at the Forest Hill address, service would still not have been effected. The reason was that at the time of service of the Statutory Demand on 12th July, 2002, it was only required by the Practice Direction that the 2nd call (2nd attempt of service) that an appointment letter should be left at the premises. Therefore, the appointment letter could still not have reached the Debtor if it was left at the premises notwithstanding the mail re-direct service set up by the Debtor for this address."

The law

11. The issues that require my determination relates to the service of the statutory demand and the petition. Similar issues had arisen before. In Re Lam Lai Wah Susanna [2002] 4 HKC 334, I summarized the law thus :

"Statutory scheme

14. The main issues concern service of the statutory demand and the petition. The importance of proper service of a statutory demand and a bankruptcy petition on the alleged debtor in a creditor's petition, as is the case here, can be gathered from the statutory scheme as provided in the Ordinance and the Bankruptcy Rules (the Rules). To this I now turn.

15. Under s 6(2) of the Ordinance, a creditor's petition may be presented to the court in respect of a debt if but only if at the time the petition is presented, among other things, the debt is a debt which the debtor appears to be unable to pay or to have no reasonable prospect of being able to pay. Section 6(2) is subject to ss 6A to 6C. For present purposes, only certain parts in s 6A are pertinent. In essence, those parts provide that (1) the debtor appears to be unable to pay the debt concerned if but only if the debt is immediately payable and the debtor has not complied with the statutory demand served on him and (2) the debtor appears to have no reasonable prospect of being able to pay the debt if but only if the debt is not immediately payable and the debtor has not complied with the statutory demand served on him.

16. Proper service of the statutory demand on the debtor is thus a pre-requisite for the commencement of bankruptcy proceedings under s 6A if the petition must have been preceded by the demand.

17. The requirements as to service of a statutory demand are found in rr 46 and 49 of the Rules.

18. Rule 46 provides:

'(1)	Rule 49 has effect as regards service of the statutory demand, and proof of that service by affidavit to be filed with a bankruptcy petition.
(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; and the time limited for compliance with the demand runs from the date of the advertisement's appearance or (as the case may be) its first appearance.'

Mr Wong, counsel for the Petitioner, conceded that r 46(3) does not apply here. [Sub-rule (3) does not apply here either.]

19. The relevant provisions in r 49 read:

'	(1)	Where under section 6A of the Ordinance the petition must have been preceded by a statutory demand, there must be filed in court, with the petition, an affidavit proving service of the demand.
	(2)	...
	(3)	...
	(4)	...
	(5)	If neither paragraph (3) nor (4) applies, the affidavit must be made by a person having direct personal knowledge of the means adopted for serving the statutory demand, and must -
		(a) give particulars of the steps which have been taken with a view to serving the demand personally;
		(b) state the means whereby (those steps having been ineffective) it was sought to bring the demand to the debtor's attention; and
		(c) specify a date by which, to the best of the knowledge, information and belief of the person making the affidavit, the demand will have come to the debtor's attention.
	(6)	The steps of which particulars are given for the purposes of paragraph (5)(a) must be such as would have sufficed to justify an order for substituted service of a petition.
	(7)	If the affidavit specifies a date for the purposes of compliance with paragraph (5)(c), then unless the court otherwise orders, that date is deemed for the purposes of these rules to have been the date on which the statutory demand was served on the debtor.
	(8)	...
	(9)	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).'

20. Rule 49(3) and (4) relate to personal service, which is not the case here. I should add that in the past, there was no procedure in place for the vetting of petitions before they were filed under r 49(9). The lacuna was addressed on 8 February 1999 when a system was introduced in the High Court Registry whereby the master in charge of the bankruptcy list vets the information of service of the statutory demand for compliance with the rules prior to the filing of the petition. Recently, the vetting procedure is enshrined in a new practice direction which will come into effect on 15 July 2002.

21. These requirements as to 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. Non-compliance gives rise to consequences which go far beyond those that would follow from any ordinary action: Re Cheung Hoi Chu, ex p International Bank of Asia Ltd (A creditor) (HCB 865-868/1998, unreported), per Le Picheon J (as she then was) at p 8. She held that it was not sufficient because somehow the statutory demand came to the notice of the debtor.

22. Rule 46(2) requires a creditor to do all that is reasonable for the purpose of bringing the statutory demand to the debtor's attention depends on the circumstances of the case. 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: see Re Li Wai Man, ex p Hang Tung Securities Ltd (HCB 211/1999, unreported), [1999] HKCU 1310, per Yuen J (as she then was). 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."

Defective service

12. In my view, the petitioner had failed to do all what was reasonable to bring the statutory demand to Mr Wong's attention. Contrary to what Mr Lau has stated, the Beverly Address could not possibly be the usual and last known address of Mr Wong. Mr Lau said that Mr Wong had not told the petitioner about the sale of the property at the Beverly Address. Even assuming that it is true, it does not assist the petitioner. For it is apparent from to the land search that Mr Lau relied on (Exhibit LCC-1) that Mr Wong had already sold that property to his wife on 1 October 1996 (after the discharge of the mortgage on 7 August 1996), who later sold it to an apparently unrelated third party on 24 May 1999. I do not think any reasonable lawyers or bank officers, having looked at the land search, would have reasons to believe that Mr Wong was still living at the Beverly Address at the material times when attempts were made to personally serve the statutory demand on him there. Indeed, the petitioner did not regard the Beverly Address as Mr Wong's usual and last known address for the purposes of sending bank statements to him and notifying him of the bankruptcy order. The petitioner knew that the property at the Forest Hill Address had been sold on 10 August 2001. But it continued to send bank statements to Mr Wong at that very address thereafter. Mr Lau has not explained why that was the case while he maintained that the Beverly Address was Mr Wong's usual and last known address. More importantly, he has not explained why the petitioner chose the Beverly Address for attempting personal service of the statutory demand and the petition, but after it had obtained the bankruptcy order, it advised Mr Wong of the same by letter addressed to the Forest Hill Address.

13. In my view, had the master been made aware of all the circumstances above, he would not have accepted that the usual and last known address of Mr Wong was the Beverly Address. He would not have been satisfied the purported service of the statutory demand by advertisement as valid either.

14. The order for substituted service of the petition was obtained on the representation to the court that the Beverly Address was Mr Wong's usual and last known address. That representation is obviously incorrect, to say the least. The master would not have granted leave had he been apprised of all the relevant circumstances. The purported substituted service of the petition was no doubt defective. That Mr Lam, counsel for the petitioner, conceded. He nevertheless took a number of points in opposing Mr Wong's application.

15. First, Mr Lam relied on a demand letter dated 12 April 2002 ("the Letter") that the petitioner sent to Mr Wong at the Forest Hill Address (page 2 of Exhibit WKK-1). The relevant part of the Letter read :

"敬啟者
Dear Sir / Madam

借款人
Borrower : WONG KAI KWONG

放款編號
Loan No : 011L04512401I

---

敝行現就尊戶之上述貸款特函通知，截至本函發出日期止，尊戶於敝行之過期供款仍未清付。
We refer to your above loan and regret having to remind you that we have not received your instalment payment of the above loan due to us up to the date of this letter.

請於本函發出日期五天內全數清還積欠貸款，否則敝行將根據有關貸款之條款，就尊戶之逾期還款資料，提供予信貸資料服務公司。
Please note that unless the amount overdue is fully repaid to us within 5 days from the date of this letter, or otherwise, we shall exercise our rights under the terms of the loan to pass the default payment information regarding your loan account onto the credit reference agency.

Yours faithfully

永隆銀行有限公司
for Wing Lung Bank Ltd

Signed

授權簽署
Authorised Signature"

16. Rule 44 of the Bankruptcy Rules provides :

" (1) A statutory demand under section 6A of the Ordinance must be dated, and be signed either by the creditor himself or by a person stating himself to be authorized to make the demand on the creditor's behalf.

(2) The statutory demand must specify whether it is made under section 6A(1) or (2) of the Ordinance.

(3) The statutory demand must state the amount of the debt, and the consideration for it (or, if there is no consideration, the way in which it arises) and -

(a)	if made under section 6A(1) of the Ordinance and founded on a judgment or order of a court, it must give details of the judgment or order; or
(b)	if made under section 6A(2) of the Ordinance, it must state the grounds on which it is alleged that the debtor appears to have no reasonable prospect of paying the debt.

(4) If the amount claimed in the statutory demand includes -

(a) any charge by way of interest not previously notified to the debtor as a liability of his; or

(b) any other charge accruing from time to time,

the amount or rate of the charge must be separately identified, the grounds on which payment of it is claimed must be stated, and in either case the amount claimed must be limited to that which has accrued due at the date of the demand.

(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but -

(a)	there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and
(b)	the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security."

17. Mr Lam argued that the Letter remained a statutory demand within the meaning of the Bankruptcy Rules. Since it was sent to the Forest Hill Address, Mr Wong has received it already. The petition can then be amended to make reference to and place reliance on it. With the greatest respect, I disagree. The Letter failed to set out the important requirements laid down in Rule 44. It is not in the prescribed form : see Form 163 of the Bankruptcy (Forms) Rules. It is just an ordinary demand letter. More importantly, it was, until counsel made his submissions, never purported to be a statutory demand for the purpose of these proceedings at all. (The only statutory demand that the petitioner attempted to serve and relied on in support of the petition is the one dated 3 June 2002.) Counsel's submissions fly in face of the evidence. Further, it should be noted that the Letter was sent to the Forest Hill Address. Any reliance on the Letter rests on the assumption that the Forest Hill Address is Mr Wong's usual and last known address for the purpose of service of a statutory demand. This flatly contradicts the petitioner's primary position, which it maintained throughout these proceedings, that the Beverly Address was his usual and last known address. Mr Lam's submissions are thoroughly bad and do not assist the petitioner at all.

18. For completeness, I wish to briefly deal with the two cases that Mr Lam relied on in support of his submissions : In Re A Debtor [1988] 1 WLR 419 (first instance), and [1989] 1 WLR 271 (CA). There, the statutory demand was defective in certain aspects. But the courts held that the deficiencies did not entitle the debtor to set it aside. Here, the Letter, as noted above, was never purported to be and can never be regarded as a statutory demand. The cases do not assist Mr Lam at all.

19. Mr Lam next submitted that the justice of the case required me not to accede to Mr Wong's application. He complained that Mr Wong did not come to court with clean hands, did not pay up the debts on demand, and did not give his residential address in his affirmations. (In his oral submissions, he attacked Mr Wong as being deceitful, and his conduct fraudulent. I find his comments on Mr Wong's character disturbing. They are not supported by evidence and counsel, as etiquette requires, should not make submission on such serious nature in the absence of clear and cogent evidence.) I have carefully considered Mr Lam's submissions. I do not consider it necessary to dwell on details. Suffice it to say that the irregularities in the service of both the statutory demand and the petition are fatal. The evidence clearly shows that the Beverly Address cannot be regarded as Mr Wong's usual and last known address. The petitioner nevertheless represented to the court that the Beverly Address was Mr Wong's usual and last known address for the purposes of these proceedings while using the Forest Hill Address for other purposes. The petitioner is guilty of sharp practice verging on misrepresentation and abuse of process. It is an affront to the court. Such conduct should not be sanctioned. It is wrong in principle to allow the bankruptcy order, the petition and the statutory demand to stand.

20. Mr Lam finally took the point that if Mr Wong's application was acceded to, injustice might be caused to other creditors. In the Official Receiver's report filed on 11 November 2003, Mr Wong's overall liabilities (in the region of some HK$7.7 million) far exceeded his assets (represented by bank balance realized by the Official Receiver in the sum of some HK$2.1 million). There are also pending litigations against him with the total sums claimed at some HK$922,000.00. In this connection, he relied on Re Tong Kwok Hon Wah Sarah [1988] HKC 547. The facts of that case are clearly distinguishable. The Official Receiver there applied to annul a receiving order on the ground that there was defective service of the bankruptcy notice. Jones J held that there was no question of irregularity arising from service. He acknowledged that the court has power to rescind a receiving order, many things had to be considered, including whether it would be for the benefit of the creditors. In my view, the overall justice in the present circumstances demand that the proceedings, which are plagued with fatal procedural irregularities, to stop where they are and any order thus obtained must be set aside. If the petitioner wishes to pursue the matter further, fresh proceedings have to be started.

21. For the above reasons, I allowed Mr Wong's application and made the order set out in paragraph 1 above.

Costs

22. The conduct of the petitioner is, as noted, an affront to the court. This is particularly so when its position is evidently not maintainable on both evidence and law. Yet the petitioner chose to fight the application to the bitter end. To mark the court's strong disapproval, indemnity costs are warranted : see Lam Lai Wah Sussana v. Pacific Century Insurance Company Limited (formerly known as Top Glory Insurance Company (Bermuda) Limited), CACV 385/2002. And I so ordered. The petitioner is also liable for the costs of the Official Receiver incurred in these proceedings, which have now become wasted because of its conduct. Such costs have been agreed at HK$20,000.00.