SANYO SECURITIES (ASIA) LTD v. LIN KUANG LUNG RAYMOND

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Applications

1. There are three applications before me, namely:

Background

2. Judgment was given by me in favour of Sanyo Securities (Asia) Ltd. ("Sanyo") against the defendant ("Mr Lin"), in High Court Action No: 3465 of 1995. Mr Lin lodged an appeal against that decision and the appeal would be heard in July 1996. The Bankruptcy Notice based on that judgment was issued by Sanyo on 15th December 1995. Order for substituted service of the Bankruptcy Notice was obtained and substituted service of the Bankruptcy Notice was effected on Mr Lin's solicitor Messrs. Baker & Mckenzie, on 8th February 1996.

Stay of Execution of Judgment

3. On the application for the stay of execution of the judgment, Mr Graham, Counsel for Mr Lin, said that he had decided not to pursue with the matter today and he asked me not to make any order on the summons. Mr Barlow, Counsel for Sanyo, moved for the dismissal of the summons. The grounds for the dismissal are fully set out in his written agreement which he adopted in his oral submissions. Mr Graham simply asked me to keep the matter open until I have dealt with his two other applications.

4. This is an application brought by Mr Lin. It is not satisfactory to leave the matter unresolved like this. I accept the arguments of Mr Barlow and dismissed the application for stay of execution of judgment with costs to Sanyo.

Substituted Service of Bankruptcy Notice

Rules 48 and 59(2) of Bankruptcy Rules

5. I will now dealt with the question of the substituted service of the Bankruptcy Notice. Rule 48 of the Bankruptcy Rules provides that a Bankruptcy Notice shall be served and service thereof shall be proved in the like manner as is by these rules prescribed for the service of a creditors' petition. Rule 59(2) provides that

"If the court is satisfied by affidavit or other evidence on oath, that prompt personal service cannot be effected because the debtor is evading service of the petition or any other legal process or for any other cause, it may order substituted service to be effected in such manner as it thinks fit."

Extension of time to effect service

6. After the issuance of the Bankruptcy Notice, Sanyo obtained an extension of time of one month to serve the Bankruptcy Notice. The reason was that despite repeated attempts, its solicitor was unable to locate Mr Lin to serve the Bankruptcy Notice.

Inquiries

7. After obtaining this order, Sanyo further obtained the order for substituted service. An enquiry agent was instructed and between 13th December 1995 and 11th January 1996, the agent visited various addresses to locate Mr Lin. The first visit was at the premises at Regent-on-the-Park. This is an address Mr Lin disclosed in his affidavit filed in opposition to the Order 14 application. He was not found at that address and it was discovered that the property was sold on 12th October 1995, which was 10 days before the hearing of the Order 14 application, for $18 million odd.

8. The property was owned by a company called Fairborn Ltd. of which Mr Lin and another person were the only two shareholders. Visit to the premises of Fairborn was detailed in the enquiry report. Again Mr Lin was not there and a Ms Tang stated that Mr Lin was not in Hong Kong and she did not know how to get in touch with Mr Lin. She said that Mr Lin would return at Christmas. Visit to another address of Mr Lin which was disclosed in the company returns of Fairborn was again fruitness.

9. I agreed with Mr Barlow's submission that the Master who granted the order for substituted service is entitled to infer from the evidence presented to him that Mr Lin has absented himself from Hong Kong and was evading service. In any event, under Rule 59, evasion of service is not the only ground for making such an order. The order for substituted service could be made for any other cause. It is clear that prompt personal service of the Bankruptcy Notice could not be made: Mr Lin could simply not be located.

10. It is said that it is not surprising for a businessman to be outside Hong Kong at times and that Sanyo had not made attempts to serve Mr Lin at his company known as Sanyou International Ltd.

11. Despite the matters disclosed in the enquiry report, Mr Lin had chosen not to file any affidavit himself or through his solicitors, disclosing his present whereabout. In his affidavit dated 15th February 1996 filed to set aside the Bankruptcy Notice, Mr Lin still stated his address to be at the Regent-on-the-Park, an address in which he was not found and the present occupants were two persons by the name of Tse Ping and Chau Cheung.

Section 124 of Bankruptcy Ordinance

12. Section 124 of the Bankruptcy Ordinance provides that formal defect or irregularity shall not invalidate any proceedings in bankruptcy. The propose of the substituted service of the Bankruptcy Notice is to bring the Bankruptcy Notice to the attention of Mr Lin. After the service of the Bankruptcy Notice on Mr Lin, application was made by him to set aside the Bankruptcy Notice. There is no question of injustice being done to Mr Lin by the substituted service of the Bankruptcy Notice.

Rule 46 of Bankruptcy Rules

13. Rule 46 of the Bankruptcy Rules which deals with the application to set aside the Bankruptcy Notice provides that if the application cannot be heard until the expiration of the time specified in the notice as the date on which the act of bankruptcy will be completed the court shall extend the time and no act of bankruptcy shall be deemed to have been committed under the notice until the application has been heard and determined. The time prescribed in the Bankruptcy Notice was 7 days after the service of the Bankruptcy Notice. As the application to set aside the Bankruptcy Notice was only heard after the expiration of the time in the Bankruptcy Notice under Rule 46, the act of bankruptcy was not deemed to have been committed until the application has been heard and determined.

Application dismissed

14. The application to set aside the order for substituted service fails and the summons is dismissed with costs to Sanyo.

Application to set aside the Bankruptcy Notice

Form

15. Mr Graham challenged the form of the Bankruptcy Notice. It is said that the name of the Deputy Registrar who issued the Bankruptcy Notice was not stated on the Notice. This is not a valid point. The Bankruptcy Notice on the Court file was sealed with the seal of the Supreme Court and there was the signature of the Deputy Registrar. It is a matter of public record who was the Deputy Registrar at the material time.

Debtor

16. It is said that Mr Lin may not even come within the definition of a debtor under s.3(2) of the Bankruptcy Ordinance. It is said that the Bankruptcy Notice did not say Mr Lin was at the time of committing the act of bankruptcy personally present in Hong Kong; or ordinarily resided or had a place of residence in Hong Kong or was carrying on business in Hong Kong personally or by means of an agent or manager or was a member of a firm of partnership which carried on business in Hong Kong.

17. It is noted that the Bankruptcy Notice, the form of which is set out in the Bankruptcy Forms Rules does not require the creditor to specify the matters set out in s.3(2).

18. It really does not lie in the mouth of Mr Lin to say that he does not come within the definition of a debtor. I have already referred to the Hong Kong address he used in the affidavit filed in the bankruptcy proceedings. In the light of the matters presented to the Court and without reversing the burden of proof in any way, if Mr Lin seriously wished to challenge his connection with Hong Kong then the simplest thing is for him to disclose his present residential status.

Cross claim

19. The ground put forward to set aside the Bankruptcy Notice is that Mr Lin has a cross claim for a sum equal to or exceeding the claim of Sanyo and that he could not have set out the cross claim in the action in which the judgment was obtained against him.

20. Although in his affidavit Mr Lin referred to the cross claim in High Court Action No. 9328 of 1995, an action which was commenced by him after the High Court Action No.3465 of 1995 and which dealt with the same subject matter of that action, Mr Graham in his submission said that he was relying on the counterclaim in High Court Action No.3465 of 1995. Mr Graham referred to Order 15, Rule 2 and the notes therein in the White Book which provide that the right of an action by way of counterclaim can only be exercised by the service of the pleading embodying the counterclaim or some other document which the court orders to stand as pleadings, since a counterclaim is not made by referring to facts alleged to constitute such a counterclaim in any affidavit filed in opposition to an application for summary judgment under Order 14 (Note 15/2/3). Mr Graham argued that Mr Lin could not possibly present the counterclaim unless and until I granted him leave to defend the action.

Argument rejected

21. I do not accept this argument. Mr Lin in the Order 14 application exhibited a draft defence and counterclaim which he verified and which he relied upon to oppose the application for judgment. He pleaded a set-off of ?350M being money entrusted by him to Sanyo for investment together with loss of interest, profits and opportunity costs. He also counterclaimed for a declaration that the Compromise Agreement was void. It is said that I have not dealt with the set-off and counterclaim in the judgment. But the basis of the set-off and counterclaim is the same misrepresentation, deception, and breach of duty which Mr Lin relied as his defence and which were rejected by me in my judgment. Not only is the set-off or counterclaim one that could be set up in High Court Action No. 3465 of 1995, it was in fact set up.

22. I am not satisfied that there is a valid reason for setting aside the Bankruptcy Notice, and the application is also dismissed with costs to Sanyo.

Bankruptcy Petition

23. As both parties have addressed me, if a bankruptcy petition is eventually presented, it is up to the bankruptcy judge to decide whether he should, pursuant to s.9(4) of the Bankruptcy Ordinance, to stay or dismiss the petition on the ground that an appeal is pending from the judgment.