RE: YAU CHI HANG and EX-PARTE: CALTEX OIL HONG KONG LTD., A JUDGMENT CREDITOR

HCB 4395, 4396 & 4397/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY NOS. 4395, 4396 & 4397 OF 2000

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(HEARD TOGETHER)

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D E C I S I O N

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1. There are three applications before the Court to annul the bankruptcy order made on 21 March 2001 against Yau Chi Hang ("Yau"), Leung Chi Wang ("Leung") and Mak Tsz Lok ("Mak") (collectively "the Debtors"). The bankrutpcy petitions were presented by Caltex Oil Hong Kong Limited ("the Petitioner") against Yau, Leung and Mak under bankruptcy nos. HCB 4395/2000, HCB 4396/2000 and HCB 4397/2000 respectively. As these three applications are closely related, I had directed that they be heard together with an early hearing be given. After hearing submissions by the parties at the hearing on 7 May 2001, I ordered that the bankruptcy order made against each of the Debtors be annulled with full reasons for decision to be given later. These are my reasons.

The Background

2. The main issue in these applications turns on the service of the statutory demand and the bankruptcy petition on the Debtors. I think it is necessary that I set out the background and the events leading to the grant of the bankruptcy order against the Debtors.

3. Yau, Leung and Mak were partners of a firm called Hung Chun (C. & H.K.) Transportation Company ("Hung Chun"). Originally Hung Chun carried on its business at G/F, No. 1 Tenth Street, Tai Wai Tsuen, Shatin, New Territories ("the Shatin address"). In about September 1997, Hung Chun moved its business to a new address known as G/F, 60 Tseng Lan Shue, Sai Kung, Kowloon, Hong Kong ("the new address"). According to the Debtor's evidence, the new address was also the residential address of the Debtors. They lived together. However, despite the change of address, the Debtors had not notified nor updated the Business Registration Office of the new address. Therefore a search at the Business Registration Office would reveal that Hung Chun was still carrying on its business at the Shatin address which was on record also the residential address of the Debtors.

4. The Petitioner was the supplier of petroleum products to Hung Chun. In the course of its business, Hung Chun owed the Petitioner a sum of $68,644.82. being the price of petroleum products sold by the Petitioner to Hung Chun during the period from December 1997 to June 1998 ("the debt"). The debt remained unpaid.

5. On 9 July 1999, the Petitioner, through its solicitors Messrs. Lo, Wong & Tsui ("the Petitioner's solicitors") sent a demand letter to Hung Chun requesting for payment of the debt. It is not disputed that the demand letter was sent to the new address as the Petitioner had been informed of such change of address by Hung Chun through telephone. The change of address was further confirmed by a written removal notice dated 21 November 1997 ("the removal notice") given by Hung Chun to the Petitioner. In the removal notice, the Petitioner was informed that Hung Chun had moved to the new address as from 1 November 1997. Details of the new address together with the telephone number and facsimile number were also set out in the removal notice. Indeed, since September 1997 up to January 2001, the Petitioner had been sending monthly statement to Hung Chun at the new address.

6. As the Petitioner received no response to the said demand letter, on 5 August 1999, the Petitioner's solicitors issued a writ of summons in the District Court claiming for payment of the debt against the Debtors. In the writ of summons, the Debtors were sued in their individual names trading in partnership under the name of Hung Chun. However, instead of serving the writ at the new address, the writ was served on each of the Debtors at the Shatin address being the residential address of the Debtors on record. Seeing that no acknowledgment of service was filed by the Debtors, default judgment was entered in favour of the Petitioner against each of the Debtors for the sum of $68,644.82 together with interest thereon and fixed costs in the sum of $1,380.00.

7. Based on the judgment obtained against the Debtors, the Petitioner commenced three separate bankruptcy proceedings against each of the Debtors. A statutory demand dated 7 October 1999 was served on Yau, Leung and Mak by advertising a notice of the statutory demand in one issue of the Oriental Daily News on 25 November 1999.

8. In order to put the matter in proper perspective, it would be useful if I explain a little bit about the requirement and procedure for filing a bankruptcy petition.

9. Since 8 February 1999, a system has been introduced in the High Court Registry whereby bankruptcy petition based on failure to comply with statutory demand would only be accepted for filing if it has been proved to the satisfaction of the Court that the statutory demand has been served on the debtor. The system was introduced to address the lacuna pointed out by Mrs. Justice Le Pichon (as she then was) in her judgment in bankruptcy no. HCB 865 of 1998 (see Re: Cheung Hoi Chu, ex parte: International Bank of Asia Limited, and heard together with HCB 866/1998, HCB867/1998 and HCB 868/1998).

10. In that judgment, Mrs. Justice Le Pichon pointed out that there were statutory requirements governing the service of statutory demand on debtor. She referred to rule 46(2) of the Bankruptcy Rules, Cap. 6, which provides that:-

"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."

She further referred to rule 49(9), which provides that:-

"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)."

She observed that since the introduction of the new bankruptcy rules, there was no procedure in place for the Court to "vet" the service of the statutory demand so as to trigger the exercise of the Court's discretion under rule 49(9) to decline the filing of petition if the statutory requirements were not met. She commented that the lacuna needed to be addressed urgently. In her judgment, she also cited a passage in Fletcher on the Law of Insolvency, 1996 Edn, at 129, which states:-

"Procedurally, the act of service is one of the most vital steps of all, and the court will scrutinize its execution, and the attending circumstances, with the utmost strictness." - italics added

The said system was thus introduced to remove the lacuna referred to in Mrs. Justice Le Pichon's judgment.

11. Under the said system, the master in charge of the Bankruptcy List would scrutinize the affirmation of service of the statutory demand to ensure that rule 46(2) is complied with. If the master is satisfied with the service of the statutory demand, leave would be granted to the creditor to file the petition. If not, the master would decline filing of the petition under rule 49(9).

12. In the present case, the bankruptcy petitions against the Debtors were presented after the introduction of the said system, as such, the Petitioner was required to prove to the satisfaction of the Court that the statutory demand had been served on the Debtors in compliance with the said rules. This was done by a Mr. Lau Heung Chuen ("Lau"), clerk and process server to the Petitioner's solicitors.

13. Lau made two affirmations namely on 8 August 2000 ("1st Affirmation") and on 30 September 2000 ("2nd Affirmation"). They were filed in relation to the bankruptcy proceedings against Yau under HCB 4395/2000. In the 1st Affirmation of Lau, he deposed that he had attempted personal service of the statutory demand on Yau by attending the usual and last known address of Yau at G/F, No. 1 Tenth Street, Tai Wai Tsuen, Shatin, New Territories namely the Shatin address. He stated that he had attended the Shatin address four times on four different occasions which included one attendance preceded by an appointment letter. He said that on three occasions, no one answered the door of the premises at the Shatin address. On one occasion, a female opened the door and told him that nobody known as Yau Chi Hang was residing thereat. Lau further stated that he had made all reasonable and practicable efforts and had used all due means in his power to personally serve the statutory demand on Yau but these efforts were all in vain. Under these circumstances, he said that he had to and did serve the statutory demand on Yau by advertising a notice in one issue of Oriential Daily News on 25 November 1999, a Chinese newspaper published and circulating in Hong Kong.

14. In his 2nd Affirmation, Lau confirmed that apart from the Shatin address, the Petitioner had no other available address upon which service of the statutory demand on Yau could be tried.

15. In the other two bankruptcy proceedings against Leung and Mak, Lau had made two similar affirmations to the same effect as his 1st and 2nd Affirmations filed in the bankruptcy proceedings against Yau. Based on the information deposed to in the 1st and 2nd Affirmations of Lau, the Court granted leave to the Petitioner to file the bankruptcy petitions against Yau, Leung and Mak.

16. After leave was granted to file the petitions against the Debtors, Lau made two further Affirmations applying for leave of the Court to serve the petitions on Yau, Leung and Mak by way of substituted service. In Lau's further Affirmations, he again deposed that he had attempted to personally serve the petition on Yau, Leung and Mak at the usual and last known address namely the Shatin address but in vain. He again repeated that apart from the Shatin address, the Petitioner had no other available address to serve the petition on the Debtors and that all reasonable and practicable efforts had been tried but to no avail. Relying on the said further Affirmations of Lau, the Court granted the application for a substituted service order and directed that the petition be served on Yau, Leung and Mak by pre-paid ordinary post to the Shatin address and by advertising a notice of the petition in the Oriental Daily News.

17. On 12 March 2001, the petition was amended pursuant to a order made by the Court. The Amended Petition was re-served by ordinary post to the Shatin address of the Debtors as provided by Lau in his affirmations. On 21 March 2001, a bankruptcy order was respectively made against Yau, Leung and Mak in their absence.

The Arguments

18. Mr. Shum, Counsel for the Debtors, sought to annul the bankruptcy orders by relying on section 33(1)(a) of the Bankruptcy Ordinance, Cap. 6 ("the Ordinance") which provides that: -

"(1) The Court may annul a bankruptcy order if it at any time appears to the Court that:-

(a) on any ground existing at the time the order was made, the order ought not to have been made; ......"

He further relied on section 9(3) of the Ordinance which states that no bankruptcy order may be made at the hearing of the petition unless the Court is satisfied with the proof of service of the bankruptcy petition.

19. Mr. Shum argued the Debtors had not been served with the bankruptcy petition. He stated that the Petitioner should have attempted to effect personal service of the petition on the Debtors at their new address. This was because the Petitioner was well aware of and had actual knowledge that the Debtors had moved to the new address. He further contended that the Petitioner had misled the Court in its application for a substituted service order of the petition on the Debtors. He said that it was wrong for the Petitioner to state in the supporting affirmations that all reasonable and practicable efforts had been made to serve the petitions personally but in fact no attempt had been tried at the new address. It was also incorrect to state that apart from the Shatin address, the Petitioner had no other available address upon which service of the petition could be tried.

20. At the hearing, Mr. Shum confirmed to the Court that the judgment debt against the Debtors in the sum of $68,644.82 together with interest thereon and the fixed legal costs incurred in the District Court action had all been paid by the Debtors to the Petitioner. Ms. McKenna, solicitor for the Official Receiver's Office also confirmed that as at the date of the hearing, the Official Receiver had not received any proof of debts submitted by other creditors against the Debtors. Although the Official Receiver had adopted a neutral stance in these application, Ms. McKenna did express her concern about the steps taken by the Petitioner in the service of the statutory demand and petition on the Debtors.

21. In response to Mr. Shum's arguments, Mr. Chung, solicitor for the Petitioner, argued that both the statutory demand and petition had been properly served on the Debtors and that service of the same had been properly proved. He submitted that before the commencement of the District Court action, letter of demand had been sent to Hung Chun at the new address, but Hung Chun nor the Debtors had made any response thereto. He therefore submitted that the service of the statutory demand and of the petition at the Shatin address was not unjustified. Further, before the commencement of the District Court action and the bankruptcy proceedings, his firm had conducted two separate business registration searches against Hung Chun. The records showed that the residential address of each of the Debtors was that of the Shatin address. Mr. Chung submitted that these records were public record, the Petitioner was entitled to place reliance on the public record and should not be blamed.

22. In the course of his argument, Mr. Chung drew a distinction between the business address of Hung Chun which was the new address and the residential address of the Debtors which was the Shatin address. Mr. Chung argued that the Petitioner had only received notice of change of business address of Hung Chun but not notice of change of residential address of the Debtors. As such, when the Petitioner's solicitors attempted to serve the statutory demand and petition, they were entitled to rely on the residential address of the Debtors (i.e. the Shatin address) as shown and recorded in the Business Registration Office. He said that the bankruptcy proceedings was against each of the Debtors in their personal capacity and not Hung Chun.

23. Having considered the submissions, I cannot agree with the arguments of Mr. Chung. In the first place, I do not think it is right, in the context of the service of documents herein, to make a superficial distinction between the address of Hung Chun and that of the Debtors. In my view, Hung Chun is only a trading name for the Debtors' partnership. The debt in question was incurred by Hung Chun for which Yau, Leung and Mak were jointly and severally liable as partners. But the fact remains that since 1 November 1997, the Debtors had been operating Hung Chun at the new address and for which the Petitioner had full and actual knowledge of the same by virtue of the removal notice. There is no reason why when the Petitioner's solicitors attempted to serve the statutory demand and petition, they only chose to serve them at the Shatin address and not the new address. Indeed, the fact that the Petitioner had received no response from Hung Chun nor the Debtors regarding the letter of demand does not necessarily mean that the Debtors had moved out and could not be located at the new address. It is to be noted that the letter of demand was sent on 9 July 1999, but between the period from September 1997 up to January 2001, the Petitioner had been sending monthly statements to the new address. This would mean that all along the Petitioner had been treating that the Debtors were still operating Hung Chun at the new address.

24. Further, when Lau (i.e. the clerk and process server) attended the Shatin address to locate Yau, Leung and Mak, he had been informed by a female adult that no such persons residing thereat. In light of this, there is also no good reason why Petitioner's solicitors never attempted to serve the statutory demand and petition on the new address.

25. On the evidence, it is clear that the Petitioner had full and actual knowledge that the Debtors had moved their place of business to the new address as early as 21 November 1997. I therefore fail to see on what basis the Petitioner or the Petitioner's solicitors could state on affirmations that the old address was the usual and last known address of the Debtors and that there was no other available address for which service of the statutory demand and petition on the Debtors could be tried. I must say that these statements are misleading and indeed incorrect. I think there are more for the Petitioner or the Petitioner's solicitors to explain on this and that they should not be allowed to rely on the public record as an excuse.

26. Indeed, had the Court been apprised of all the material facts, in particular to the removal notice received by the Petitioner, the Court would not have granted leave to file the petitions nor approved the application for substitute service of the petitions. The Court would have directed that attempts be made to serve the statutory demand and petition on the Debtors at the new address. On the evidence before the Court, I am not satisfied that the statutory demand and the petition had been properly served on the Debtors. In my view, the Petitioner has failed to comply with the statutory requirement under rule 46(2) and that the Court should have declined the application for leave to file the petition against the Debtors under rule 49(9). And having considered all the circumstances, I am of the view that the bankruptcy order ought not to have been made against the Debtors. I annul the bankruptcy order made against Yau, Leung and Mak respectively.

Costs

27. In light of my decision above, I see no reason why costs should not follow the event. I shall make an order nisi that the Petitioner do pay to the Debtors the costs of these bankruptcy proceedings include the costs of the Official Receiver and of these applications with a Certificate for Counsel.