RE WILIAM ZENG (FORMERLY KNOWN AS ZENG WEI)

HCB 4428/2023

[2024] HKCFI 2856

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4428 OF 2023

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JUDGMENT

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Applications

1.  The matters before the court are:

(1)  The substantive hearing of the bankruptcy petition issued by the petitioner (“P”) on 2 August 2023 (the “Petition”).

(2)  The application by the debtor (“D”) to strike out the Petition on the grounds that:

(a)  the Petition disclosed no reasonable cause of action and/or an abuse of process for (i) improper service of the statutory demand dated 18 June 2021 (“SD”) and ii) failing to satisfy the jurisdictional gateway under section 4(1) of the Bankruptcy Ordinance (Cap 6) (the “Ordinance”).

(b)  leave to issue and present the Petition was obtained by material non-disclosure by P and should be set aside.

2.  D seeks to in any event have the Petition dismissed on the basis of a bona fide dispute on the underlying debt giving rise to the SD.

3.  Mr Clifford Smith SC leading Mr Tommy Cheung appeared for P while Mr Johnny Mok SC leading Ms Joyce Leung appeared for D.

4.  At the hearing, it was agreed between Mr Smith and Mr Mok that the court should first deal with the issues of :

(1)  whether the SD was properly served;

(2)  whether the jurisdictional gateway under section 4(1) of the Ordinance has been satisfied; and

(3)  whether leave to issue and present the Petition should be set aside for material non-disclosure.

5.  It was also agreed that if D is successful in his application to strike out the Petition based on any of the above grounds, it would not be appropriate for this court to express its views on the merits of the case, which should be left for the trial or otherwise disposal of the action under HCA 371/2023.

Background

6.  On 18 June 2021, based on D’s default to repay a debt due to P, P issued the SD against D. The alleged debt arose out of a guarantee dated 12 April 2016 (the “Guarantee”) where D guaranteed the repayment obligations of Max China Holdings Limited (“Max China”) to P under a promissory note dated 12 April 2016 (the “Promissory Note”). The total amount of the debt is said to be US$34,061,537.46.

7.  P has personally attempted to personally serve the SD on D at 3 addresses:

(1)  Room 1602, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong (the “Far East Finance Address”). This is the designated address for communications for D in the Guarantee.

(2)  Suite 5201, 52/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong (the "Central Plaza Address"). This is the address of Kostar Investments Limited, the process agent for Max China.

(3)  Room 4302, 43^rd Floor, China Resources Building, (the “CRB Address”) This is the registered address of Kostar Investments Limited since 7 November 2022.

(Together, the “3 Addresses”)

8.  P’s attempts in personally serving the SD on D are as follows:

Date	Events
18 June 2021	SD issued
	1st attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
21 June 2021	Appointment letters preceding the 2nd attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
25 June 2021	2nd attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
14 July 2021	Advertisement of the SD on Sing Tao Daily (the “Sing Tao Advertisement”)
	Advertisement of the SD on the Standard (the “Standard Advertisement”)
18 August 2021	WeChat message from P’s Andrew Hin-yeung Lo (“Andrew Lo”) to D enclosing the SD, the Sing Tao Advertisement and the Standard Advertisement
22 February 2022	Application for leave to issue petition
7 April 2022	1st requisitions from the court (the 1st Requisitions”)
5 July 2022	P’s response to the 1st Requisitions
1 November 2022	2nd requisitions from the court (the 2nd Requisitions”)
25 November 2022	Appointment letters preceding the 3rd attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
28 November 2022	1st attempt of personal service of the SD at the CRB Address
5 December 2022	3rd attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
	Appointment letter preceding the 2nd attempt of personal service of the SD at the CRB Address
12 December 2022	2nd attempt of personal service of the SD at the CRB Address
13 March 2023	P issued the Writ of Summons in HCA 371/2023 (“Writ”)
25 April 2023	3rd requisitions from the court (the 3rd Requisitions”)
17 May 2023	Appointment letters preceding the 4th attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
	Appointment letter preceding the 3rd attempt of personal service of the SD at the CRB Address
22 May 2023	4th attempt of personal service of the SD at the Central Plaza Address and the Far East Finance Address
	3rd attempt of personal service the SD at the CRB Address

9.  As can be seen, personal service of the SD on D was unsuccessful and P relied on service by advertisement in two newspapers on 14 July 2021 and by WeChat.

10.  In view of the potential expiry of the limitation period, P issued a protective writ under HCA 371/2023 against D on 13 March 2023.

11.  More than 2 years after the service of the SD, P issued the Petition on 2 August 2023 in reliance on the non-satisfaction of the SD.

12.  P then applied for and obtained leave from a Master on 9 November 2023 to serve the Petition by substituted service (the “Sub-Service Order”) on D’s solicitors. The Sub-Service Order was not set aside or appealed against.

13.  D filed notice of intention to oppose the Petition on 29 November 2023 and filed the present summons on 4 December 2023 to strike out the Petition.

14.  At the call-over hearing before Peter Ng J on 11 December 2023, it was directed that D’s affirmation do stand as his affirmation in opposition to the Petition and P was granted leave to file an affirmation in reply.

15.  D, by way of filing of his defence under HCA 371/2023 on 19 July 2024 raised his defence based on the Money Lenders Ordinance for the first time.

Issues

16.  There are 3 issues before the court:

(1)  Has the SD been properly served?

(2)  Is there material non-disclosure on P’s part such that leave to issue the Petition ought to be set aside?

(3)  Whether the jurisdictional gateway is established for P to present the Petition against D?

Service of the SD

17.  Rule 46(2) of the Bankruptcy Rules (Cap. 6A) provides:

“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.”

18.  The dispute between the parties arose this way: P had attempted personal service at the 3 Addresses and failed. As a result, P relied on service of the SD by 2 advertisements on 14 July 2021 when seeking leave from the court to issue the Petition.

19.  Mr Mok submitted that at the material times, it was practicable for P to effect personal service of the SD on D but P had failed to do so:

(1)  P had at all material times been in contact with D by WeChat.

(2)  Andrew Lo of P had sent the SD to D via WeChat on 18 August 2021. D had clearly responded and a telephone conversation ensued. It would have been possible to arrange for personal service directly with D, when multiple attempts to personally serve D at the 3 Addresses proved impossible.

(3)  P and D had met in person in Hong Kong in September 2022. P could have personally served the SD on D at that time.

20.  On the other hand, Mr Smith submitted that what is paramount is to bring the SD to the attention of D. Although P had attempted personal service and had failed, there is no dispute that D had had notice of the SD latest by 18 August 2021 and as such, it is irrelevant that further attempts of personal service were not carried out, and the requirement in Rule 46(2) had been complied with.

21.  Mr Mok submitted that the effect of Rule 46(2) is that personal service is required and is the prescribed means of service where it is practicable. The following cases are relied upon for this proposition:

(1)  In Re Lam Chik Sing[1], the headnote provides that “[p]roper service of the statutory demand was a prerequisite for the commencement of bankruptcy proceedings under s.6A of the Bankruptcy Ordinance (Cap.6). The requirements as to service of the statutory demand must be strictly adhered to: failure to properly serve the demand was not just a formal defect or irregularity, but it rendered defective the petition founded on the demand, even if the debt was not in dispute.”

(2)  In Re Cao Zhong[2], Recorder William Wong SC set out the general principles in relation to service of a statutory demand:

“63. …

(1) If practicable, personal service of the statutory demand should be effected…

(2) If not, the creditor should do all that is reasonable to bring the statutory demand to the debtor’s attention, i.e., by making two personal calls to the debtor’s address on separate days, the second of which should be by appointment letter.

(3) Failing all other reasonable means of bringing the statutory demand to the debtor’s attention, the creditor should apply for substituted service by advertisement of the statutory demand.

(4) The initial burden is on the debtor to show that the petitioner had not done all that was reasonable for the purpose of bringing the statutory demand to the notice of the debtor.

(5) If the Petitioner has done all that are practically reasonable, whether or not the debtor had in fact received the documents is besides the point.

64. It goes without saying that failure to serve the statutory demand is an extremely serious matter… Service of the statutory demand, in my view, goes to the Court’s jurisdiction for the purposes of §6A of the Ordinance.”

(3)  In Re Pang Mei Lan May[3], Barma J held that the creditor was required to do “all that is reasonable” to bring the statutory demand to the debtor’s attention. Where personal service is practicable, this is required. What was reasonable was to be judged objectively in the light of the information actually or constructively available to the creditor at the time. It is only where personal service has failed, and reasonable enquiries have led nowhere that it is open to the creditor to take such other steps as may be reasonable to bring the statutory demand to the debtor’s attention.

(4)  In Re Li Xiaoming[4], Mimmie Chan J held that:

“Although Rule 46 (2) does not make personal service a prerequisite in every case, in all cases, the creditor is required to do “all that is reasonable” in order to bring the statutory demand to the attention of the debtor to be served. Where the creditor asserts that it is impracticable to cause personal service of the statutory demand, it must satisfy the Court that personal service is impracticable for the reasons stated, and that the steps actually taken were all that was reasonable to bring the statutory demand to the debtor’s attention …”

22.  I am of the view that in the present case, Rule 46(2) had been complied with:

(1)  The court had time and again held that proper service of the statutory demand was a prerequisite for the commencement of bankruptcy proceedings under section 6A of the Ordinance. This is based on the rationale that the creditor is relying on a statutory demand to show a debtor’s inability to pay and the importance of establishing with certainty the period within which a debtor has to comply with the statutory demand[5]. A debtor must therefore have had notice of such demand and have an opportunity to respond or object to such a demand.

(2)  Mr Mok placed emphasis on one of the principles set out in the judgment of Au-Yeung J in Re Dai Yumin[6] where the learned Judge referred to the summary by Mimmie Chan J in Re Li Xiaoming at §§8-11: “It is wrong to say that so long as the statutory demand came to the attention of the debtor, it should not matter how this came about. If this were correct, the Bankruptcy Rules would not go to such elaborate lengths specifying requirements as to service as well as to what is required by proof of service…”

(3)  The phrase “it was not sufficient because somehow the statutory demand came to the notice of the debtor” was first used in Re Lam Lai Wah Susanna[7], and International Bank of Asia Limited, A Creditor [8]was relied upon as authority. If one reads International Bank of Asia Limited, A Creditor in context however, the phrase does not have the effect that Mr Mok advocated for (that despite there being notice, if there is no personal service where practicable, Rule 46(2) is still not complied with):

(a)  In International Bank of Asia Limited, A Creditor, Le Pichon J (as she then was) dealt with statutory demands against 4 individuals where service was by way of depositing the same in a letter box next to the lobby of the debtor’s residence and the reception of the Company in which the debtors were directors. There was no personal service and there was no attempt to take steps with a view to serving the demands personally or to bring them to the notice of the debtors.

(b)  It was on such bases that the learned Judge held in §§13-14:

“13. The Petitioner’s case comes to this: so long as the statutory demand does come to the notice of the Debtors (and it matters not how this came about), that is sufficient.

14. If this submission is correct, one wonders why the rules go to such elaborate lengths specifying requirements as to service as well as to what is required by way of proof of service. I do not agree that rules as to service can be flouted with impunity so long as by some lucky happenstance the statutory demand at some point falls into the hands of the debtor. 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…”

(4)  One can immediately note that the circumstances of the present case are different: P had attempted personal service multiple times by sending appointment letters prior to visits to the designated correspondence address and other known addresses. Although P may be criticised for not effecting personal service through other possible avenues, it is not disputed that latest by 18 August 2021 (2 months after the SD was issued) D had had notice of the SD, as Andrew Lo of P had sent via WeChat to the Debtor enclosing the SD, the Sing Tao Advertisement and the Standard Advertisement.

(5)  It therefore cannot be said that in the present case D acquired notice of the SD “by some lucky happenstance”. Notice had at least been given by P sending through the SD and other relevant documents and information to D via WeChat. Multiple attempts at personal service had also been carried out, albeit unsuccessful.

(6)  Rule 46(2)’s requirement is for a creditor to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention. The second part of Rule 46(2) (“if practicable in the particular circumstances, to cause personal service of the demand to be effected”) does not change the nature of the requirement. Personal service is simply one of the more fail-safe methods of service that ensures that notice would be brought to the debtor’s attention.

(7)  In all of the cases relied upon by D, the emphasis has always been on bringing the statutory demand to the debtor’s notice:

(a)  In Re Dai Yumin, challenge to service of a statutory demand failed as notice of it had been brought to the attention of the debtor[9].

(b)  In Re Pang Mei Lan May, Barma J (as he then was) held:

“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. This seems to me to follow from the general requirement of doing all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention. 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. … If, as a result of making such reasonable inquiries, he obtains such an address, he should attempt personal service at it. 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.”[10] (emphasis added)

The requirement is therefore to bring notice of the statutory demand to the debtor, not personal service per se.

(c)  In Re Cao Zhong, Recorder William Wong SC clearly recognised the requirement as bringing the statutory demand to the debtor’s attention[11]. The debtor’s claim that he had not received a copy of the statutory demand was rejected and the Judge found that he was aware of it. This is one of the reasons why the learned Judge rejected the challenge to service.

(d)  In Re Li Xiaoming, the learned Judge found that the debtor had had no notice of the statutory demand and thus ruled that service was defective.

(8)  This interpretation is further supported by the updated Practice Direction 3.1/§2.1 (which came into effect on 17 July 2023):

“Service of statutory demand

2.1 Rule 46(2) provides that ‘[t]he 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.’. The steps set out in this paragraph would normally be regarded as compliance with his obligation under Rule 46(2):

…

(b) If the debtor has agreed with the creditor to use any electronic means (which include emails, WhatsApp, WeChat or other similar means of communications (“Electronic Means”)) to receive any documents relating to the debt the subject of the statutory demand, or the debtor has during the period of 12 months immediately preceding the date of the statutory demand used any of the Electronic Means to communicate with the creditor, and the creditor has sent the statutory demand to the debtor through the Electronic Means; or…” (emphasis added)

(9) Although the updated version of the practice direction was not yet in force when the SD was served, it nonetheless supports the interpretation that the emphasis of Rule 46(2) is on bringing a statutory demand to the notice of a debtor.

23.  D’s challenge to service thus fails.

Material Non-Disclosure

24.  Mr Mok submitted that when P applied ex parte for leave to issue the Petition, it had failed to make full and frank disclosure:

(1)  Express requisitions were raised by the Court on:

(a)  Whether P has knowledge of any other address(es) of D for service of the SD;

(b)  In light of the failed attempts to find D at the 3 Addresses, what were the grounds for belief that D was within jurisdiction at the time of advertisement of the SD; and

(c)  Despite the telephone conversation on 19 August 2021 between D and Andrew Lo of P, whether P has exhausted all possible means in proper manners to effect service of the SD.

(2)  However, it was said that P gave the following untruthful and misleading answers:

(a)  that P had no knowledge of any other addresses of D when P clearly knew about D’s Beijing address, which is the designated address for communications for D in two investment agreements signed between P and D in 2008 and 2010 respectively;

(b)  that P had grounds for believing D was within jurisdiction at the time of attempted service and advertisement when P knew that D was in Beijing at the material time through their WeChat discussion; and

(c)  that P had exhausted all possible means to effect service on D without even mentioning that D had in fact met up with P personally in September 2022. None of material facts was brought to the Court’s attention.

(3)  There was no good explanation put forward for giving such answers to the court’s requisitions. Mr Smith could only submit that there is no authority in support of the court dealing with material non-disclosure in relation to requisitions in the same way as other ex parte applications.

(4)  I am of the view that the duty of full and frank disclosure in answering requisitions is the same as all other ex parte applications. I agree with Mr Mok’s submission that the Court “imposes a heavy burden on an applicant to make full and frank disclosure where an ex parte application for leave is made to the court”[12] and the “right test” for materiality “is that the court must be fully informed of all facts that are relevant to the weighing question which the court has to make in deciding whether or not to make the order”[13]. I am of the view that although in the present case the fact that a representative of P has met with D and that when substituted service was effected, P knew that D was not within the jurisdiction might not affect the decision on whether a Master would grant leave (as notice of the SD had already been given by WeChat and D had had notice of the SD), they would still be relevant factors for the court to take into account, and as such, ought to have been disclosed. Further, the non-disclosure here was not merely in the form of a failure to mention relevant facts, but in fact, were misleading if not untruthful answers given to the court.

25.  I am therefore of the view that the leave granted for the issue of the Petition ought to be set aside for material non-disclosure on the part of P.

Lack of Jurisdiction

26.  Section 4 of the Ordinance provides:

“(1) A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor —

(a) is domiciled in Hong Kong;

(b) is personally present in Hong Kong on the day on which the petition is presented; or

(c) at any time in the period of 3 years ending with that day —

(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(ii) has carried on business in Hong Kong.

(2) The reference in subsection (1)(c) to a debtor carrying on business includes —

(a) the carrying on of business by a firm or partnership of which the debtor is a member; and

(b) the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.”

27.  These constitute what are often called the “jurisdictional gateways”. In the present case, P only relies on the Place of Residence gateway to found jurisdiction.

Place of Residence Gateway

28.  Insofar as the place of residence is concerned, the relevant principles are set out in Lakatamia Shipping Company Ltd v Hsin Chi Su[14]:

(1)  The “place of residence” must be that of the debtor and not someone else.

(2)  The concept of “residence” is different from one of “mere occupation”. The condition of “place of residence”, as with conditions of “domicile”, “ordinary residence” and “carrying on business” all connote a degree of substantiality and continuity of the connection with the jurisdiction, and cannot be satisfied by occupation (in particular if it is fleeting and transient).

(3)  To reside is “to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place”, and a place of residence is “a settled or usual place of abode”, and “connotes some degree of permanence, some degree of continuity or some expectation of continuity”.

(4)  A place of residence is a de facto situation rather than a matter of legal right such that a licensee may have a place of residence; a moral claim to premises may be sufficient; the premises may also be occupied by others; and it is possible to have a dwelling house without being in occupation during the relevant period.

(5)  What is insufficient is where the debtor has temporarily occupied a place of residence of a third party with the permission of a third party.

29.  Here, D has tendered evidence to the effect that in the 3 years before the presentation of the Petition from 3 August 2020 – 2 August 2023 (the “Relevant Period”), D only stayed in Hong Kong for 22 days, and save for the period of 14-21 September 2022 in which COVID travel restrictions were still applicable and he had to stay in designated quarantine hotel, all of his visits were day or overnight trips. For all of these short trips to Hong Kong, D had stayed at the Four Seasons Hotel.

30.  These were not disputed. However, Mr Smith submitted that:

(1)  D has continuously, repeatedly and/or consistently registered landed properties in Hong Kong as his residential address or address in the company documents (relating to his own companies) filed with the Companies Registry, a public registry through which D represented to the members of the public his particulars. It was submitted that such contemporaneous continuous, repeated and/or consistent declaration by D speaks volumes of the lack of credibility of his current jurisdiction challenge.

(2)  D was at all material times an experienced businessman, the fact that he has kept using such addresses in Hong Kong as his residential addresses without notifying the Companies Registry and/or the public of his change of residence from Hong Kong to, e.g., the Mainland clearly shows his continuous intention to maintain his ‘place of residence’ in Hong Kong. This is particularly so when he had never changed his residence from Hong Kong to, e.g., the Mainland;

(3)  D had executed a deed poll before a Hong Kong solicitor on 27 November 2015 (the “Deed Poll”) changing his former name to his current name William Zeng. In the Deed Poll, D expressly designated a Repulse Bay address as his address and confirmed that he was “a resident of Hong Kong”. Instead of providing other documentation to the Hong Kong solicitor, he provided his Hong Kong Permanent Identity Card on this occasion for the purpose of verifying his identity.

(4)  D’s wife executed a certificate dated 7 January 2016 certifying that, inter alia, she “currently [resides] at the [Repulse Bay address]”, and “[is] a citizen of Hong Kong”, showing clearly that both D and his wife treated the Repulse Bay address as their place of residence in Hong Kong.

(5)  D had also, as a condition precedent in a facility letter dated 19 March 2008 given a statement that he is not a PRC resident as defined under SAFE Circular 75 and SAFE implementation Rules 106. This is directly contradictory to his stance given in the present application.

31.  Despite the above repeated representations by D that he is a resident and has a residential address in Hong Kong, whether D has had a place of residence in Hong Kong is a factual matter. Applying the principles in Lakatamia Shipping Company Ltd, I am of the view that D has tendered sufficient evidence to show that he has not had a place of residence in Hong Kong during the Relevant Period.

32.  Whether D would be liable for making such false representations in the relevant official documents is another matter and does not affect factually if D has a place of residence in Hong Kong under section 4 of the Ordinance.

33.  P has thus failed to establish jurisdiction for presenting the Petition against D.

Conclusion

34.  As there is no jurisdiction to issue the Petition and leave to issue the Petition is to be set aside for material non-disclosure, the Petition is dismissed. The issue of whether there is a bona fide dispute raised by D in relation to his liability under the Guarantee should therefore be more appropriately dealt with in HCA 371/2023.

Costs

35.  Although D is overall successful in his application to dismiss the Petition based on a lack of jurisdiction and P’s material non-disclosure, P is successful in the service argument. I am also of the view that despite the court having held that there was no jurisdiction, P had been misled by all the representations made by D (as set out in paragraph 30 hereinabove) when issuing the Petition to be under the impression that there would be jurisdiction under the “Place of Residence” gateway.

36.  The respective time spent at the hearing on the service argument, the jurisdiction argument and the material non-disclosure is approximately 60:30:10.

37.  Taking into account the respective time spent on the arguments and the conduct of D in deliberately misleading P as well as the public about his residence status, I am of the view that despite the result, to show the court’s disapproval in D’s own deliberate and inaccurate representations in various public documents, P should be entitled to 50% of the costs in the Petition, including costs of the hearing, on a party and party basis, with certificate for 2 counsel, to be taxed if not agreed.

38.  The above costs order is on a nisi basis and will become absolute if there is no application to vary it within 14 days hereof.

39.  I thank Mr Smith and Mr Mok for their helpful assistance.