RE SARAH TONG KWOK HON WAH

IN THE HIGH COURT OF JUSTICE

HONG KONG

IN BANKRUPTCY

NO. 186 OF 1985

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JUDGMENT

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1. On the 7th November 1983 Wing Lung Bank Limited (the petitioner) obtained judgment under order 14 against Sarah Tong Kwok Hon Wah alias Kwok Hon Wah Sarah, trading as S. Tong & Co. (the bankrupt) for a sum of over $7.7 million. Subsequently the bankrupt's indebtedness was reduced to just over $3.7 million. However, no further payments were made with the result that the petitioner applied for the issue of a bankruptcy notice on the 5th March 1985 based upon the balance due under the judgment.

2. Following the request, a bankruptcy notice was filed on the 7th March 1985 and was served by post, which was at that time a permissible way of service, at the bankrupt's last usual or known address in Hong Kong which was at a flat in Fairview Mansion, 84 Robinson Road and also at the firm's address in Wyndham Street. An affirmation of service was made by a clerk in the petitioner's solicitors to the effect that he posted sealed copies of the bankruptcy notice to both those addresses on the 19th March 1985 and that the documents were not returned, through the post, undelivered. The clerk went on to say in his affirmation that in his opinion service would have come to the knowledge of the bankrupt within seven days after posting. Service was therefore deemed to have been effected on the seventh day after posting which gave the bankrupt a further seven days from that date to comply with the terms of the bankruptcy notice.

3. As no compliance was made within the time limited, a bankruptcy petition was filed on the 3rd April 1985. The petition was also served on the bankrupt by post at the same addresses and an affirmation of service was filed.

4. At the hearing of the petition on the 6th May 1985 there was no appearance by the bankrupt so that a receiving order was made based upon non-compliance with the bankruptcy notice whilst the Official Receiver was constituted receiver of the estate. Sealed copies of the receiving order were served at the same addresses by post. An adjudication order was made on the 12th June 1985 when the Official Receiver was appointed trustee of the estate without a committee of inspection.

5. In January 1986, the Official Receiver submitted a report to the Court requesting directions following information that had come into his possession from the Immigration Department and the Standard Chartered Bank (Hong Kong) Trustee Limited that the bankrupt had left Hong Kong on the 24th June 1984 and had not since returned and was now living in Ontario, Canada. Apparently, the bankrupt has a substantial interest in a trust fund and the Official Receiver had, as trustee, been receiving a number of payments from the Standard Chartered Bank out of the fund towards settlement of her debts.

6. By the report, the Official Receiver expressed the view that the bankruptcy proceedings were void since the bankruptcy notice had not been served on the bankrupt in Hong Kong in accordance with the provisions of section 3(1)(g) of the Bankruptcy Ordinance.

7. I gave the following directions pursuant to the Official Receiver's report on the 3rd February 1986:-

"Service of the bankruptcy notice was served by post at the last known address of the debtor in Hong Kong. Accordingly, as at the date of the receiving order, in the absence of evidence to the contrary, the notice was deemed to have been validly served. No application has been made by the debtor to set aside the notice onto rescind the receiving order. The proceedings are therefore validly constituted. "

8. By the present application the Official Receiver seeks orders for the receiving order to be rescinded and the adjudication order to the annulled on the grounds that they should not have been made as a result of defective service.

9. Mr Brown who appeared for the Official Receiver relies heavily on the case of Michael Ma Wing also known as Michael Ma v Fong Sze Ming also known as Fong Ming ⁽¹⁾. In that case with the knowledge of the petitioner the bankrupt had left his address in Hong Kong before a bankruptcy notice was served by post at that address. The petition that was also served by post alleged three acts of bankruptcy : (1) failure to comply with a bankruptcy notice; (2) that with intent to defeat or delay his creditors, the debtor had departed out of Hong Kong; (3) that with intent to defeat or delay his creditors, the debtor departed from his dwelling house or otherwise absented himself and with the like intent continues to absent himself. It is clear that at the hearing of the petition having regard to the second act of bankruptcy alleged the Official Receiver was also aware that the bankrupt had left Hong Kong before service of the bankruptcy notice. Mr Brown prays in aid the words of Cons V.P. in the Ma case at page 16 where he had this to say:-

"Both the petitioning creditor and the official receiver in the present instance were well aware of the facts which indicated that the receiving and adjudication orders ought never to have been made. Yet they have both been content to rely on those orders for all this time, with no attempt to have them set right. "

 

10. Mr Brown went on to submit that although the petitioner in the instant case eras not aware of the fact that the bankrupt was abroad at the time of service by post, nevertheless, that was irrelevant having regard to section 9(2) of the Bankruptcy Ordinance which reads :-

"At the hearing the court shall require proof of the debt of the petitioning creditor, of the service of the petition and of the act of bankruptcy, or if more than one act of bankruptcy is alleged in the petition, of some one of the alleged acts of bankruptcy, and if satisfied with the proof, may make a receiving order in pursuance of the petition. "

 

He also invoked the provisions of section 3(1)(g) of the Bankruptcy Ordinance to which I have already referred with regard to the service of the bankruptcy notice which was effected in Hong Kong when the bankrupt was outside the jurisdiction, with the result that the proceedings are a nullity and void and should be set aside.

11. However, the preconditions for making a receiving order are those which appertain at the time when the receiving order is made. The case of Ma which resulted in the Court of Appeal, allowing the appeal from my refusal to set aside the bankruptcy proceedings, was based upon the evidence which was accepted, that at the time of service the bankrupt was known to be abroad, so the court was held to have acted without jurisdiction. Cons, V.-P. made reference to this on page 4 of his judgment where he said:-

"Nevertheless, in blissful disregard of paragraph 7 of the Petition and the knowledge that Mr Ma had not since returned, those advising Mr Fong thought fit to despatch the Petition also by ordinary post to the address in Shiu Fai Terrace. "

 

12. The present case is clearly distinguishable from that of Ma for there is no evidence that the petitioner was aware of the fact that the bankrupt was abroad when the bankruptcy notice and petition were served. Here the receiving order was made upon evidence that the bankruptcy notice and petition had been properly served by post in Hong Kong at the usual of last known address of the bankrupt. There was therefore no question of any irregularity arising with regard to service at the time of the hearing of the petition when the receiving order was made. Nevertheless Mr Brown, whilst accepting that the petitioner was not aware of the true position at the time urged me to have regard to the reality of the situation which reveals that the bankrupt was not properly served on the assumption that the information received by the Official Receiver is correct.

13. However, Miss Eu for the petitioner drew my attention to the case of Re Betty⁽²⁾ which was an appeal from a decision of a registrar who refused to rescind a receiving order made against the debtor. The facts showed that after the debtor's departure from the jurisdiction, the judgment creditor after obtaining an order for substituted service served a bankruptcy notice and a petition. The debtor claimed ignorance of the bankruptcy proceedings and applied in March 1902 for the order to be rescinded, which, as I have said, was refused by the registrar. At the hearing of the debtor's appeal which was dismissed Collins, M.R. said at pp431 and 432 :-

"In this case it is not disputed that the Queen's Bench judgment was properly obtained, though the appellant's solicitor thought there was no defence to the action, and so did not instruct counsel; and in the bankruptcy proceedings also everything has been done regularly and in Proper form. But notice of them did not in fact reach the debtor till January last, and he came in March to the registrar and asked for rescission of the receiving order on this ground. He has not, however, been able to shew that he has paid the petitioning creditor, and even if he could have shewn this it would have been going a very little way towards fulfilling the conditions on which applications of this kind, affecting the right of others, should be granted - conditions which ought to be very rigorously enforced. The bankruptcy Act, 1883, s.7(3), defines the ground on which the court may dismiss a petition, and the debtor ought to be able to satisfy the court that he can pay his debts or that the order ought not to have been made for other sufficient reason. The appellant here does not show any such grounds, and it is evident that when he went to Africa he had many debts. We have no assurance that he can pay his creditors in full, ..........”

Stirling, L.J. agreed and said at p. 432 :-

"The court has power to rescind a receiving order, but Re Perkins (34 Solicitors' Journal 349, 7 Mor. 78) shews that many things have to be considered before it does so, including the question whether it would be for the benefit of the creditors. They have come in and proved, and I am not satisfied that rescission would be for their benefit. "

 

Cozens-Hardy, L.J. concurred with those two judgments.

14. In this case, the bankrupt must obviously be aware of the bankruptcy proceedings because the Official Receiver has received payments, as I have mentioned earlier, from the Standard Chartered Bank out of the trust funds. Yet, the bankrupt has taken no steps to apply to set aside the bankruptcy proceedings on the grounds that the receiving and adjudication orders ought not to have been made or sought to challenge her liability to the petitioning creditor. There is further no evidence that the bankrupt is able to pay her debts in full. I would respectfully adopt the reasoning of the Court of Appeal in Re Betty that many things have to be considered before a receiving order can be rescinded.

15. In my judgment, the fact that evidence arises later that the bankrupt was out of the jurisdiction at the time of service does not render the proceedings null and void when at the time the order was made, service had been properly proved. When the receiving order was made in this case the Court acted with jurisdiction whereas the order in the Ma case was made without jurisdiction service having been shown to be defective. Accordingly, I am unable to accept the submission made on behalf of the Official Receiver that the present proceedings are void with the result that the application is dismissed.

(1) Civil Appeal No. 72 of 1987

(2) 46 Solicitors' Journal 431, 19 Apr 1902.