RE LELA TONG

HCB 14214/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 14214 OF 2009

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J U D G M E N T

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1.  This is an application by Ms Lela Tong under section 33(1) of the Bankruptcy Ordinance seeking to annul a bankruptcy order made against her on 6 January 2010.  Ms Tong relies on both grounds identified in section 33(1) for the purposes of this application, contending that the bankruptcy order ought not to have been made against her for a number of reasons (section 33(1)(a)) and also that the provable debts and the expenses of the bankruptcy have, since the making of the bankruptcy order, been either paid or secured to the satisfaction of the court (section 33(1)(b)).

2.  The petition on which the bankruptcy order was made was presented on 10 November 2009.  It was based on a statutory demand dated 30 June 2009, by which the Petitioner, Madam Lam Fai, sought payment of the sum of HK$39,777.00 representing the amount of a default judgment obtained by the Petitioner in proceedings against Ms Tong in the Small Claims Tribunal plus costs and interest up to the date of the statutory demand.  Neither the statutory demand nor the petition was served personally on Ms Tong. Attempts were made to serve each of them on Ms Tong at Flat A, 16^th floor, Cherish Court, Peninsular Village, 2 Capeland Drive, Discovery Bay, Lantau in the New Territories (“the Cherish Court premises”) on a number of occasions, but these having had no result, the statutory demand was served by advertisement in two local newspapers (one English, and the other Chinese), as later was the petition, pursuant to an order for substituted service.  Ms Tong did not appear at the hearing of the petition on 6 January 2010, when the bankruptcy order was made against her.

3.  At the hearing, Ms Tjia, appearing for Ms Tong, submitted that the bankruptcy order ought not to have been made for three reasons:-

(1)    The statutory demand was not properly served on Ms Tong, as the Petitioner had not done all that was reasonable to bring it to her attention;

(2)    The default judgment on which the statutory demand and petition were based was irregular because of bad service, and in any event Ms Tong had a good defence to it; and

(3)    Ms Tong was not domiciled or ordinarily resident in Hong Kong during the period of three years immediately prior to the presentation of the petition.

4.  As a fall back position, Ms Tjia submitted that Ms Tong had the means to meet all the provable debts and the expenses of the bankruptcy, and could secure them to the satisfaction of the court.

5.  Mr Shipp, appearing for the Petitioner, submitted that none of these grounds were made good.

6.  The factual background can be summarised as follows:-

(1) Ms Tong is a citizen of the United States of America.  She says that she used to work in Hong Kong, but that since at least November 2006, she has been working mostly in Mainland China or the United States.

(2) On 25 April 2006, Ms Tong entered into a tenancy agreement with the Petitioner in respect of Flat F, 15^th floor, Greenery Court, Greenvale Village, Discovery Bay, Lantau (“the rented premises”).  The tenancy agreement was for a period of two years from 15 May 2006, at a monthly rental of HK$6,300.  In the tenancy agreement, Ms Tong’s address is stated as Room 2205, Kinwick Centre, 32 Hollywood Road, Central, Hong Kong (“the Kinwick Centre address”).  The tenancy agreement was signed by Ms Tong, and appeared to have been signed by the Petitioner as well.

(3) Ms Tong did not actually meet the Petitioner at the time the tenancy agreement was signed.  She dealt with a Mr William Wong Wei Ping, to whom she was introduced by an estate agent, Mr Nelson Chan, as the representative of the Petitioner, the owner of the rented premises and who lived in Beijing.  At Ms Tong’s request, Mr Wong eventually provided her with a letter of authorisation apparently signed by the Petitioner, which appeared to authorise him to deal with the rented premises on her behalf.

(4) Thereafter, Ms Tong moved into the rented premises, and stayed there when she was in Hong Kong, paying the rental each month into a bank account of Mr Wong, in accordance with his instructions.

(5) In April 2008, shortly before the tenancy was due to expire, Ms Tong met the Petitioner for the first time, at a meeting arranged by Mr Chan, the estate agent, who was also present.  Ms Tong says that the Petitioner produced her name card at this meeting, but that as there was only one name card, the card was kept by Mr Chan, and she was given a photocopy of the card. At the meeting, the Petitioner said that she had not in fact signed the tenancy agreement, and that what purported to be her signature was a forgery, apparently perpetrated by Mr Wong.  The Petitioner also claimed that she had not received any of the rental payments under the tenancy agreement.  Ms Tong told the Petitioner that for her part, she had no idea that there was any problem with the tenancy agreement, and that she had been paying rent regularly in accordance with the instructions of Mr Wong, whom she believed to have been authorised by the Petitioner to give them.

(6) At the meeting, the Petitioner told Ms Wong that she did not intend to renew the tenancy agreement after its expiry the following month.

(7) Ms Tong did not in fact move out at the expiry of the tenancy.  Instead, she remained in occupation of the rented premises.  She says that she was being given conflicting information by Mr Chan, the estate agent, who at various times told her that the Petitioner wanted to sell the property, or that she had changed her mind, or that she and and Mr Wong had resolved their differences.  Ms Tong says that she therefore continued to send cheques in respect of the rental under the tenancy agreement, but that as she now knew that Mr Wong was not authorised to receive them, she sent them to the Petitioner at the address mentioned on the name card which she had been given. She says that she also wrote to the Petitioner from time to time from May 2008 onwards, but that faxes that she tried to send to the Petitioner (to a number shown on the name card) did not go through.  In the first of these faxes (which was copied to Mr Chan) she indicated that correspondence should be sent to her at the rented premises, and not to the Kinwick Centre address shown on the tenancy agreement.

(8) She also communicated with Mr Chan from time to time.  On 5 June 2008, Mr Chan informed her that the Petitioner was not happy that Ms Tong had not vacated the premises, and wanted Ms Tong to pay a higher amount of HK$10,000 per month until she moved out (which should be done as soon as possible), on the basis that this was the current market rental, to be paid to him on behalf of the Petitioner.  Ms Tong responded on 16 June 2008, with a letter to the Petitioner (copied to Mr Chan) enclosing a further cheque for HK$6,300 for the period to mid-June.  This led Mr Chan to write to her on 20 June 2008, informing her that the address on the name card was not valid, and that the Petitioner had not received any of the cheques Ms Tong said she had sent.

(9) Notwithstanding this, Ms Tong continued to send cheques for HK$6,300 each month to the address shown on the name card, as she says she did not trust Mr Chan, and had been given no evidence of his having been authorised by the Petitioner to receive payments on her behalf.  The Petitioner says that she never received any of the cheques sent by Ms Tong, and Ms Tong does not appear to suggest (and has produced no evidence to suggest) that the cheques were ever cashed.

(10) On 12 August 2008, the Petitioner’s solicitors (who had by now been instructed) wrote to Ms Tong demanding vacant possession, and payment of the market rent as mesne profits for her continued occupation of the premises. This letter was sent to both the rented premises and to the Kinwick Centre address.  Ms Tong says that she received the letter that was sent to the rented premises.  The letter sent to the Kinwick Centre address was, however, returned to the Petitioner’s solicitors through the post office on 29 August 2008, marked “Return to Sender” and “Refused”.  Ms Tong was not able to provide any explanation for this.

(11) Thereafter, there was further correspondence between Ms Tong and the Petitioner’s solicitors.  Ms Tong also says that she spoke to the solicitor handling the matter for the Petitioner, but this is not accepted by the Petitioner or her solicitors.  At the end of the day, I do not think anything turns on this.  In the letters sent by Ms Tong, she reiterated that she had sent cheques to the Petitioner in Beijing, and said that she would move out as soon as possible.  She also offered to leave a contact address, although it does not seem that she ever actually did so.  In the responses from the Petitioner’s solicitors, the demands that Ms Tong move out, and for payment of mesne profits in the meantime, were repeated.

(12) On 18 September 2008, Ms Tong wrote to the Petitioner’s solicitors saying that she had moved out the previous day.  Despite promising to get in touch to arrange for the provision of fresh cheques to cover the period of her continued occupation after the expiry of the tenancy agreement, she did not do so.  Nor did she provide a forwarding address.

(13) Having heard nothing further from her, the Petitioner commenced proceedings against Ms Tong in the Small Claims Tribunal.  Ms Tong did not appear (she says that she never received any documents in relation to these proceedings) and the Small Claims Tribunal made an adjudication in the Petitioner’s favour on 12 December 2008 in Ms Tong’s absence.  The amount awarded (HK$37,916) represented mesne profits calculated at the rate of HK$9,000 per month over the period of Ms Tong’s continued occupation of the property, as the adjudicating officer considered that this rate (rather than the HK$10,000 per month claimed) represented the value of the property having regard to the fact that it had then been let out at this level of rental.

(14) Thereafter, attempts were made between late March and September 2009 to serve a statutory demand on Ms Tong.  These attempts were all made at the Cherish Court address, the Petitioner or her solicitors having obtained it as a result of enquiries made with Mr Chan.  None of these attempts was successful.  Ms Tong says that this was because apart from a period of about two weeks well before March 2009, she had never lived in those premises, using them only as a storage place for her furniture and other property for the time being.  She also says that she had given up the tenancy on this property by July 2009.

(15) During this period, Ms Tong was contacted by the police in connection with an investigation into Mr Wong’s activities in pocketing the rental paid by her for the rented premises.  She replied to the police from the United States, giving an address in the United States as her contact address, saying that she did not have a Hong Kong contact address.

(16) Following the failure of the initial attempts to serve a statutory demand, the statutory demand dated 30 June 2009 was advertised in two newspapers in Hong Kong on that date, as I have already noted.

(17)  After issuing the petition on 10 November 2009, and following unsuccessful attempts to serve it on Ms Tong personally at the Cherish Court address, the petition was served on her by substituted service, and the bankruptcy order made in Ms Tong’s absence.

(18)  Ms Tong says that shortly after the bankruptcy order was made, she found out about it by discovering that her bank account in Hong Kong had been frozen.  She accordingly contacted the Official Receiver, and learned of the bankruptcy order.  She does not appear to have provided any statement of affairs to the Official Receiver, but instead took out proceedings on 10 March 2010 to have the Small Claims Tribunal adjudication set aside.  These came to a halt when the Official Receiver pointed out that she could not act on her own behalf so long as she remained a bankrupt.  For the purpose of this application, Ms Tong stated that her address was at building called Success Commercial Building.

(19)  On 1 April 2010, Ms Tong took out this application.  In her affirmations, she once again gave the Kinwick Centre address as her address. The grounds mentioned in the application were not quite the same as those advanced by Ms Tjia at the hearing, but I do not think anything turns on this. I shall consider below each of the grounds which she relied upon at the hearing.

7.  As I have noted, the first ground relied upon by Ms Tong for the purposes of section 33(1)(a) of the Bankruptcy Ordinance is that the statutory demand was not served on her properly, in that the Petitioner had failed to take all reasonable steps to bring it to her attention.  In consequence, the petition, which was based on the statutory demand, did not afford a good basis for the making of a bankruptcy order.

8.  There was no real dispute between Ms Tjia and Mr Shipp as to the applicable legal principles.  Both accepted that these were adequately set out in my judgment in Re Pang Mei Lan May [2005] 1 HKC 319, and could be summarised as follows:-

(1) The bankrupt bears the initial burden of showing that the petitioner had not done all that was reasonable for the purpose of bringing the statutory demand to the notice of the Bankrupt, as required by rule 46(2) of the Bankruptcy Rules, dealing with service of statutory demands.

(2) Whether or not the petitioner had done all that was reasonable for this purpose is to be judged objectively, according to the information actually or constructively available to the Petitioner at the time when service is attempted.

(3) If the bankrupt succeeded in discharging this burden, the onus shifted to the petitioner to establish that such steps as he should reasonably have taken could not or would not have resulted in the statutory demand coming to the attention of the bankrupt.

See Re Pang Mei Lan May (supra), at paragraphs 23 to 28 and 30 to 37 of the judgment.

9.  Ms Tjia submitted that the Petitioner or her legal representatives must have known about the Kinwick Centre address, and that they should therefore have attempted service of the statutory demand at that address also.  By failing to do so, they had not taken all reasonable steps to bring the statutory demand to Ms Tong’s attention.  In her affidavits filed for the purposes of this application, Ms Tong has stated that had that been done, the statutory demand would have come to her attention.

10.  There can be no doubt that the Kinwick Centre address was known to the Petitioner and her solicitors.  Not only was it stated on the lease (although not expressly as a “contact address”, as Ms Tong has persistently sought to characterise it), but the letter of 12 August 2008 demanding vacant possession and payment of mesne profits was sent to that address by the Petitioner’s solicitors.

11.  Mr Shipp says, however, that in failing to attempt service of the statutory demand at the Kinwick Centre address, the Petitioner cannot be said to have failed to take some step which she ought reasonably to have taken.  He says that:-

(1) While Ms Tong has referred to this address as her “contact address”, it was not in fact so described in the tenancy agreement, and Ms Tong had never given a contact address in Hong Kong to the Petitioner.  Further, despite having promised to do so, Ms Tong never provided the Petitioner’s solicitors with a contact address either, whereas had this been her contact address, she could easily have said so.

(2) Ms Tong had earlier (in her letter of 16 May 2008) indicated that the Kinwick Centre address should no longer be used.

(3) The 12 August 2008 letter from the Petitioner’s solicitors, which had been sent to the Kinwick Centre address as well, was returned in the post, having been marked “Refused”.  There was therefore no reason for the Petitioner or her solicitors to think that this was any longer a valid address to which documents could, or should, be sent.

(4) Ms Tong had told the police that she had no contact address in Hong Kong.

(5) The Petitioner had managed to discover the Cherish Court address, without help from Ms Tong, who now seeks to distance herself from it.

12.  In my view, when considering whether or not the Petitioner can be said to have failed to take all reasonable steps to bring the statutory demand to Ms Tong’s attention, the points mentioned in sub-paragraphs (2), (4) and (5) of the previous paragraph do not really assist the Petitioner.  As to the letter of 16 May 2008, it was not one which had come to the Petitioner’s attention until after this application was made (the copy that had been faxed to the Petitioner did not, as Ms Tong says, go through), and therefore can provide no basis for her to say that, as at the time of attempted service of the statutory demand, she was under the impression that the Kinwick Centre address was not an effective address at which documents would reach Ms Tong.  As to what Ms Tong told the police, this too, was not something that was known to the Petitioner at the time, and therefore could not have been something that she or those acting for her could have had in mind in deciding not to attempt service at the Kinwick Centre address.  As for the fact that the Petitioner discovered the Cherish Court address for herself, this does not bear on the question of whether or not she should have attempted service at the Kinwick Centre address.

13.  However, I am satisfied that the other points do mean that it was not unreasonable for the Petitioner to have omitted to attempt service at the Kinwick Centre address.  The fact that the 12 August 2008 letter from the Petitioner’s solicitors was returned in the post would have indicated to the Petitioner and her solicitors that the Kinwick Centre address was not one at which Ms Tong could be reached.  Ms Tjia submitted that the return in the post of one letter was not something that should have led the Petitioner to give up on that address.  But the fact is that at a time when the Petitioner and her legal representatives were aware of that address as a possible address for Ms Tong, they made use of it, only to be told, in effect, that documents sent to Ms Tong at that address would not be accepted, and would not reach her.  In these circumstances, I do not think that the Petitioner and her solicitors can be criticised for acting on this, by failing thereafter to attempt service at the Kinwick Centre address.

14.  The failure of Ms Tong to provide the promised contact address, when it would have been a simple matter for her to inform the Petitioner’s solicitors of the Kinwick Centre address would, I think, tend to reinforce this belief on the part of the Petitioner and her solicitors.

15.  I am therefore of the view that Ms Tong has not established that the Petitioner had fallen short in her obligations in relation to service of the statutory demand by reason of the failure to attempt to serve it at the Kinwick Centre address.  Although Ms Tjia suggested that it was inexplicable that this address was not brought to the court’s attention in the context of the application for leave to issue the petition, it seems to me that for the reasons given above, it was not unreasonable for the Petitioner not to have mentioned this address in that context, given that their experience with the demand letter indicated that the address was not one at which service could be effected.

16.  Further, even if I am wrong about this, and the Petitioner should have taken steps to attempt service of the statutory demand on Ms Tong at the Kinwick Centre address, I think that the Petitioner has discharged the onus on her of showing that such service would not have brought the statutory demand to the attention of Ms Tong.  This is not something about which there can be certainty, and I think it is a matter which the Petitioner must establish on a balance of probabilities.  On this basis, it seems to me that the fact that the 12 August 2008 letter that was sent to the Kinwick Centre address was returned, and Ms Tong’s failure to offer that address as her contact address would be evidence on which the Petitioner could rely for this purpose also.  Similarly, the fact that Ms Tong had, in her letter of 16 May 2008 indicated that the Kinwick Centre address should no longer be used, her statement in her correspondence with the police that she did not have a contact address in Hong Kong and her use of a different business address as her address for the purposes of her abortive application to set aside the Small Claims Tribunal adjudication are further matters that can be relied on by the Petitioner for this purpose (even though they were not known to the Petitioner at the time), for the enquiry at this stage is not directed to what the Petitioner ought to have done in the light of what she knew, but to what effect service at the address in question was likely to have, and they tend to show that the Kinwick Centre address was no longer being used by Ms Tong.

17.  Against this can be set Ms Tong’s assertion that anything sent to the Kinwick Centre address would have come to her attention.  However, this is largely self-serving, and should, I think, be given relatively little weight.  The same is true of the fact that she used this address as her address when making her affidavits for the purpose of this application.  The only other matter which suggests that the Kinwick Centre address might have been effective is the fact that Ms Tong has exhibited a recent bank statement which was sent to that address.  But that does not tell one what the position was as at March to September 2009, when the Petitioner’s solicitors were trying to serve the statutory demand on Ms Tong.

18.  Taking all of these matters into consideration, I am satisfied that the Petitioner should be regarded as having discharged the onus of showing that service at the Kinwick Centre address would not have been effective as at the relevant time, if (contrary to my earlier conclusion) it is necessary for her to do so.

19.  Ms Tong also criticised the Petitioner for having attempted service at the Cherish Court address.  This criticism is misplaced.  Given that Ms Tong had moved out of the rented premises, and the Kinwick Centre address was not one which, in the circumstances known to the Petitioner and her legal representatives, could be regarded as an address at which the Petitioner should have attempted to effect service, the fact that the Petitioner made enquiries with a view to finding an address for Ms Tong at which service might be effect is not a matter for criticism.  Rather, it indicates that the Petitioner and those acting for her took seriously their obligations to do all that was reasonable to effect service of the statutory demand on Ms Tong.

20.  I therefore conclude that the Petitioner has, in the circumstances of this case, taken all reasonable steps to bring the statutory demand to the attention of Ms Tong, and that this ground for setting aside the bankruptcy order fails.

21.  Ms Tong’s second point in support of the application under section 33(1)(a) of the Bankruptcy Ordinance was that the bankruptcy order ought not to have been made because the default judgment was bad for defective service, or alternatively because Ms Tong had a meritorious defence to it.

22.  I do not think that there is any merit to this point.  Ms Tong has provided no information, beyond asserting that she did not receive any papers in relation to the claim in the Small Claims Tribunal, to enable the question of whether or not service was regular to be considered.  The mere fact that she did not know of the proceedings does not ipso facto show that service was irregular.  So far as the existence of a defence on the merits is concerned, the material available does not suggest the existence of any such defence.  Ms Tong is unable to show that any payments had been made to the Petitioner in respect of her occupation of the rented premises after the expiry of the tenancy agreement, let alone any payments in an amount which would have discharged her liability to pay mesne profits based on the then rental value of the property, rather than the lower rent that she had been paying while the tenancy agreement was in effect.  If any payments had been made and had been received by the Petitioner, this is something which would have been apparent from Ms Tong’s bank account, to which such payments would have been debited.  No evidence of any such debiting was provided by Ms Tong for the purposes of this hearing.

23.  I therefore think that this point, too, provides no basis for annulling the bankruptcy order.

24.  Ms Tong’s final point under section 33(1)(a) of the Bankruptcy Ordinance is based on an argument that the court had no jurisdiction to make a bankruptcy order against her because she had not, in the three years immediately preceding the day on which the petition was presented been ordinarily resident in Hong Kong.  This is a reference to the requirement under section 4(1)(c)(i) of the Bankruptcy Ordinance, pursuant to which a bankruptcy petition cannot be presented unless, at any time in the period of three years ending with the day on which it is presented, the debtor has been ordinarily resident, or has had a place of residence, in Hong Kong.

25.  So far as ordinary residence is concerned, Ms Tong has said in her affidavits that she is a citizen of the United States, and is not domiciled in Hong Kong.  She has also said that she spent much of her time in the three years before the presentation of the petition against her working in Mainland China and the United States. In support of this allegation, she exhibited her travel records obtained from the Immigration Department.  These showed that she was in Hong Kong for 146 days, 286 days and 111 days in the three years in question.  The situation here is therefore far removed from that in Re Wong Lei Kwan Joanne (unreported) HCB 2837 of 2007, Barma J, 14 March 2008.  There, I held that presence in Hong Kong of about 20 odd days over the relevant three year period, involving three overnight stays, none of which exceeded two days, could not be regarded as establishing ordinary residence in Hong Kong in the relevant period.  The extent of Ms Tong’s presence in Hong Kong is in a different order of magnitude altogether.  Moreover, from November 2006 until at least September 2008 (a period of some 22 months), Ms Tong had rented the rented premises, in which she resided when she was in Hong Kong.  This indicates clearly that she was ordinarily resident in Hong Kong during that period, as she maintained a home here which she frequently occupied.

26.  But quite apart from this, the fact that Ms Tong had entered into the tenancy agreement, and was making use of the rented premises to live in when in Hong Kong, means that even if (contrary to the view I have expressed in the preceding paragraph) she was not ordinarily resident in Hong Kong, she nonetheless had a place of residence in Hong Kong for nearly two out of the three years preceding the presentation of the petition and is therefore caught by the other limb of section 4(1)(c)(i) of the Ordinance.  This ground for annulment is therefore unarguable.

27.  This leaves Ms Tong’s application to annul the bankruptcy on the basis of section 33(1)(b) of the Bankruptcy Ordinance.  In support of it, she has exhibited a copy of a recent bank statement showing that she had over HK$780,000 in a bank account in Hong Kong as at December 2009.  However, section 33(1)(b) requires that all provable debts, and the expenses of the bankruptcy, shall have been paid or secured to the satisfaction of the court, to the extent required by the Bankruptcy Rules. As at this point, none of the provable debts in Ms Tong’s bankruptcy have been paid.  Indeed, as Ms Tong had not, prior to the making of the application, delivered a statement of affairs to the Official Receiver, there is no evidence as to what her debts, which would be provable in her bankruptcy, actually are. Nor do any steps seem to have been taken to secure the payment of such debts (whatever their level may turn out to be).

28.  In these circumstances, I do not think that it would be either possible or appropriate to exercise my discretion under section 33(1)(b) so as to annul Ms Tong’s bankruptcy.

29.  For the foregoing reasons, I am satisfied that none of the grounds relied upon by Ms Tong at the hearing of this application justify the making of an order annulling her bankruptcy, and her application is accordingly dismissed.  So far as costs are concerned, I make an order nisi that Ms Tong is to pay the Petitioner and the Official Receiver their costs of this application.  In the case of the Petitioner, such costs are to be taxed on the party and party basis if not agreed.  In the case of the Official Receiver, the costs are assessed in the sum of HK$5,000 as asked for in the Official Receiver’s report dated 19 April 2010.

30.  I should add that notwithstanding the dismissal of this application, it remains open to Ms Tong to make a fresh application under section 33(1)(b) of the Bankruptcy Ordinance if she should later be in a position to satisfy the requirements of that section.  However, it would be as well for Ms Tong to bear in mind that annulment under that provision is not automatic, but is at the court’s discretion, and that the court will have regard, when considering the exercise of that discretion, to the views, if any, expressed by the Official Receiver in respect of it.