RE CHUNG SUN KWAN

HCB 21283/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.21283 OF 2002

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J U D G M E N T

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THE APPLICATION

1.  This is the Judgment Debtor (“the Debtor”)’s application to annul the bankruptcy order made against him on 18 December 2002 (“the Bankruptcy Order”) on the ground that the Bankruptcy Order ought not to have been made, pursuant to section 33(1)(a) of the Bankruptcy Ordinance (Cap.6) (“the Ordinance”) which provides that:

“The Court may annul a bankruptcy order if it at any time appears to the Court that [...] on any grounds existing at the time the order was made, the order ought not to have been made...”

2.  To decide on this application, there are a number of issues which have to be dealt with.  They will be listed under paragraph 21 below, after I have set out the relevant factual background and the applicable principles.

FACTUAL BACKGROUND

3.  The relevant factual matters which are undisputed are as follows.

4.  On 6 March 2000, Kwangtung Provincial Bank (“KP Bank”), the predecessor of Bank of China (“BOC”), obtained an order (“the March 2000 Order”) against the Debtor for payment of the sum of $3,055,778.02 and daily interest on $2,841,150.66 calculated at the rate of 18.5% per annum from 14 January 2000 to 6 March 2000 (i.e. $1,440.04 per day) and thereafter at judgment rate until payment (“the Judgment Debt”).

5.  On 30 October 2000, the solicitors of KP Bank sold a property of the Debtor in Tai Po (“the 1^st Premises”) by public auction for $2,400,000 to satisfy part of the Judgment Debt.

6.  Apart from the property aforementioned, at the material time, the Debtor also owned 4 pieces of land, namely, Lot No.1091 in D.D.8, Lot No.1092 in D.D.8, Lot No.954 in D.D.19 and Lot No.1240 in D.D.19 (“the Subject Lands”).

7.  KP Bank obtained a charging order absolute over the Subject Lands on 27 February 2001 (“the Charging Order”) with a view to enforcing the March 2000 Order.

8.  On 13 December 2001, BOC, via its then solicitors (“Robertsons”), issued a statutory demand for the balance of the Judgment Debt in the sum of $1,211,715.43 (“the Statutory Demand”).  The Statutory Demand did not mention anything about the Charging Order.

9.  Robertsons attempted to serve the Statutory Demand on the Debtor at the 1^st Premises and at another last known address of the Debtor at No.20 Lam Tsuen Sun Tsuen (“the 2^nd Premises”) in February and March 2002 but in vain.

10.  Upon enquiry made by Robertsons, Messrs. Cheng, Chan & Co., which at the material time was acting for the Debtor in another set of proceedings, confirmed on 22 March 2002 that they had no instructions from the Debtor to accept service of the Statutory Demand.

11.  Robertsons therefore advertised the Statutory Demand in a Chinese newspaper circulating in Hong Kong on 29 April 2002.

12.  With leave of the court, BOC issued the Petition herein against the Debtor on 17 October 2002.  In the Petition, BOC pleaded that it did not, nor did any person on its behalf, hold any security on the Debtor’s estate, or any part thereof, for payment of the balance of the Judgment Debt.

13.  Personal service of the Petition was attempted at the 2^nd Premises in October and November 2002 but to no avail.  On 6 December 2002, BOC obtained a substituted service order for the Petition.  Service of the Petition was then effected accordingly.

14.  On 18 December 2002, the Bankruptcy Order was made against the Debtor in his absence.

15.  The Debtor was discharged from bankruptcy automatically pursuant to section 30A of the Bankruptcy Ordinance on 18 December 2006.

16.  On 16 December 2013, the Official Receiver pointed out by letter to BOC’s legal representative, which was Messrs. Li & Partners at the time, that, among other things, BOC had failed to state in the Petition that it held security on the Debtor’s estate (i.e. the Charging Order) for payment of the petitioned debt.

17.  On 16 October 2014, BOC obtained leave from the court to amend the Petition, so that the Charging Order was added therein, and the total value of the security held by the Debtor was stated to be $682,500.

OVERVIEW OF THE DEBTOR’S ARGUMENTS AND THE RELEVANT STATUTORY PROVISIONS

18.  In a gist, the Debtor has raised two main arguments in support of his case that the Bankruptcy Order should be annulled:

(a)   BOC has failed to disclose in the Statutory Demand and the Petition herein the existence of the Charging Order (“the Security Point”); and

(b)   BOC has failed to serve the Statutory Demand and the Petition on the Debtor properly (“the Service Point”).

19.  In the light of the above arguments, the following provisions in the Ordinance and the Bankruptcy Rules (Cap.6A) (“the Rules”)^[1] are relevant:

The Security Point

Section 6B – Creditor with security

“(1) A debt which is the debt, or one of the debts, in respect of which a creditor's petition is presented need not be unsecured if either –

the petition contains a statement by the person having the right to enforce the security that he is willing, in the event of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt's creditors; or

the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the petition of the security for the secured part of the debt.

(2) [...]”

Rule 44 – Form and content of statutory demand

“(1) – (4) [...]

(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but –

(a) there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and

(b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security.”

Rule 48 – Hearing of application to set aside

“(1) – (4) [...]

(5) The court may grant the application if –

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand:

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.

(6) – (8) [...]”

The Service Point

Rule 46 – Requirements as to service

“(1) Rule 49 has effect as regards service of the statutory demand, and proof of that service by affidavit to be filed with a bankruptcy petition.

(2) 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.

(3) Where the statutory demand is for payment of a sum due under a judgment or order of any court and the creditor knows, or believes with reasonable cause –

(a) that the debtor has absconded or is keeping out of the way with a view to avoiding service; and

(b) there is no real prospect of the sum due being recovered by execution or other process,

the demand may be advertised in one or more newspapers; and the time limited for compliance with the demand runs from the date of the advertisement's appearance or (as the case may be) its first appearance.”

Rule 49 – Proof of service of statutory demand

“(1) – (7) [...]

(8) Where the creditor has taken advantage of rule 46(3), the affidavit must be made either by the creditor himself or by a person having direct personal knowledge of the circumstances; and there must be specified in the affidavit –

(a) the means of the creditor's knowledge or (as the case may be) belief required for the purposes of that rule; and

(b) the date or dates on which, and the newspaper in which, the statutory demand was advertised under that rule,

and there shall be exhibited to the affidavit a copy of any advertisement of the demand.

(9) 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).”

THE APPLICABLE PRINCIPLES

20.  The principles applicable to the present application have been set out in a number of authorities including Kam Hung Cheung v Bank of China [2009] 3 HKLRD 597, Re To Cho Ping [2012] 1 HKLRD 125 and Re Chan Chi Ho, ex p Strong Well International Ltd [2008] 5 HKLRD 871.  They may be summarised as follows:

(i)   In considering whether to exercise the power under section 33(1)(a), the court should first look at whether there were any grounds on which a bankruptcy order ought not to have been made at the material time when it was made. 

(ii)   Failure to serve the statutory demand properly is a ground for holding that the bankruptcy order ought not to have been made.

(iii)   The person applying to annul a bankruptcy order bears the burden of proving on the balance of probabilities that when the order was made there were grounds on which the order ought not to have been made.

(iv)   If the court does not think that such grounds existed, it cannot invoke section 33(1)(a) to annul the bankruptcy order. 

(v)   If the court thinks that such grounds existed, it still has to consider whether it should exercise its discretion to annul the bankruptcy order.

(vi)   In exercising the discretion under section 33(1), the court has to carefully consider the interests of the creditor, the debtor and the public, bearing in mind that a bankruptcy order is to be annulled only under exceptional circumstances.

(vii)   Where a bankruptcy order was made in the absence of the debtor, or where the underlying judgment in favour of the creditor was obtained by reason of the debtor’s failure to give Notice of Intention to Defend, then the debtor must provide reasonable and credible explanations for his absence or failure to give Notice of Intention to Defend.

THE ISSUES

21.  In the light of the aforesaid general principles and the points taken by the parties, the relevant issues (and sub-issues) herein are as follows:

(1)   Ought the Bankruptcy Order not to have been made by reason of:

(a) the non-compliance of Rule 44(5);

(b)   the value of the security held by BOC equalled or exceeded the full amount of the outstanding debt as at the presentation date of the Petition herein;

(c)   the non-compliance of section 6B;

(d)   the failure on the part of BOC to serve the Statutory Demand on the Debtor properly;

(e)   the Petition should not have been served by substituted service.

(2)   In the event it is found that the Bankruptcy Order ought not to have been made, whether the court should exercise its discretion in annulling the Bankruptcy Order.

(3)   Whether it is a legal requirement on the part of the Debtor to provide reasonable and credible explanations for his absence in the bankruptcy proceedings; if so, whether the Debtor has satisfied this requirement.

DISCUSSIONS

Issue 1(a) – Non-compliance of Rule 44(5)

22.  It is undisputed that BOC had failed to mention about the security it held in the form of the Charging Order in the Statutory Demand and that BOC was as a result in breach of Rule 44(5).

23.  However, the parties made different submissions in relation to the consequence of such a breach.

24.  Mr. Ng for the Debtor placed heavy reliance on paragraph 7-202 of Muir Hunter on Personal Insolvency and submitted that the defect in the Statutory Demand is incapable of remedy.  The relevant part of the said paragraph 7-202 is as follows:

“When the creditor has failed to reveal the existence of the security, it is suggested that the defect is incapable of remedy and the demand should be set aside. Where he has revealed the security but has undervalued it to such an extent that the court is satisfied that its value equals or exceeds the full amount of the debt, the demand should be set aside on the ground that the debt is sufficiently secured...”

25.  In the light of Rule 48(5), I do not think Mr. Ng’s submission in this regard is sustainable.

26.  Rule 48 is a provision applicable to an application to set aside a statutory demand.  Sub-rule (5)(c) thereof provides that the court may set aside a statutory demand:

“if it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt.”

27.  If Mr. Ng is correct, then the court would have no choice but to set aside a defective statutory demand by reason of the non-compliance of Rule 44(5).  However, pursuant to the said Rule 48(5)(c), even in the case of such non-compliance, the court is still given a discretion as to whether to set aside the statutory demand, since, as highlighted in the preceding paragraph, the word used in Rule 48(5)(c) is ”may”, but not “shall”. 

28.  The application of Rule 48(5)(c) has been demonstrated by the Court of Appeal in Re Chan Chi Loi [2008] 2 HKLRD 444.  In this case, the petitioner had mistakenly declared in the statutory demand that the entirety of the outstanding debt was unsecured, but in fact part of the debt was secured by a charging order absolute.  The petitioner then presented a petition against the debtor, and stated therein that although he held security for the debt, he would give up such security.  The Court of Appeal held that since the petitioner was going to abandon his security anyway, there was nothing unjust for the court to allow the defective statutory demand to remain valid.

29.  As explained by Johnson Lam J (as his Lordship then was) in Re Chan Chi Loi (supra), whether a petitioner should be allowed to rely on a defective statutory demand depends on whether it would be just in the circumstances.

30.  When considering this question, I bear in mind the fact that it is a statutory requirement that if a creditor holds any security, he has to specify the nature of such security and the value which the creditor puts upon it in the statutory demand.  The court normally expects full compliance of requirements of this sort by a party (BOC in the present case) before that party is entitled to rely on the mechanism in getting what he prays for (the Bankruptcy Order). 

31.  Having said that, one should not lose sight of the general principle that it is the Debtor who has the burden to prove his case.  Hence, it is the Debtor who has to satisfy this court that it would be unjust for BOC to be allowed to rely on the Statutory Demand in the present circumstances. 

32.  In this regard, Mr. Ng drew my attention to the fact that when the Debtor learnt about such an omission subsequently, he did adduce expert evidence to prove that the security had been undervalued by BOC.  Hence, Mr. Ng submitted that it could be inferred that if the Debtor had notice of the Statutory Demand back in 2002, the same action would have been taken, and the Debtor would not have remained an undischarged bankrupt for 4 years. 

33.  With respect, this argument must be rejected, for the prejudice which the Debtor was said to have suffered was a hypothetical one.  What the court is concerned should be the prejudice which the Debtor had actually suffered. 

34.  According to the two affirmations filed by the Debtor for the purpose of this application, he “had never been served with nor was [he] aware of the [S]tatutory [D]emand”.  If he was unaware of the Statutory Demand anyway back in 2002 as alleged, whether it had specified the nature of the security held by BOC, etc. made no difference as a matter of fact.  The Debtor cannot on one hand allege that he had no notice of the Statutory Demand, and on the other hand assert that he would have suffered prejudice if he had had such notice.  He cannot have the best of both worlds.

35.  I therefore reject the Debtor’s argument that the Bankruptcy Order ought not to have been made by reason of the non-compliance of Rule 44(5).

Issue 1(b) – Value of the security

36.  The next issue is whether the value of the security held by BOC equalled or exceeded the full amount of the outstanding debt as at the presentation date of the Petition herein.

Forced sale value – discount rate

37.  To answer this question, the court has to assess the estimated value of the Subject Lands which are the subject matters of the Charging Order.  For this purpose, it is accepted by the parties that it is the forced sale value of the Subject Lands which is relevant, following Kwan JA’s judgment in Re Lau Kwok Fai Bernard (HCB 11144/2004, unreported, 15 September 2005) which in turn adopted what was held in Platts v Western Trust & Savings Ltd [1996] BPIR 339 at 347G.

38.  In this regard, while BOC has adduced expert evidence on how the forced sale value of the Subject Lands should be assessed, namely, by applying a certain discount on the market value of the Subject Lands, the Debtor had not done so.

39.  Mr. Yu for BOC initially submitted that since the Debtor’s expert has not addressed the question of forced sale value at all, the court should disregard the Debtor’s expert reports altogether. However, Mr. Yu subsequently conceded in the hearing that this is not a correct approach.

40.  This is a sensible concession. Even though the Debtor’s expert did not give his opinion on the appropriate discount, his expert evidence should not be disregarded altogether merely for this reason.  While at the end of the day the Debtor bears the burden of proof, there is nothing which prohibits the court from, if appropriate, applying the discount suggested by BOC’s expert to the market value assessed by the Debtor’s expert so as to arrive at the forced sale value of the Subject Lands. 

41.  What should be the appropriate discount then?

42.  Mr. Ng for the Debtor initially accepted in the hearing on 20 July 2016 that the court may accept the rate of 40% as suggested by Mr. Spancer Wong, BOC’s expert, as the appropriate discount.  However, in the hearing on 6 September 2016, Mr. Ng submitted that the court should adopt 30% as the discount rate which was suggested as the appropriate rate in assessing forced sale value in another set of expert reports (“the DTZ reports”) adduced by BOC because this rate commensurate with the expert evidence placed before Deputy High Court Judge Woolley in Wong Ho Ming Kenneth v The Hongkong Chinese Bank, Limited (HCSD 17/1999, unreported, 13 April 2000) where the experts in that case agreed that a forced sale would reduce the value of a property by between 15% and 30%.

43.  In my view, I should adopt 40% as the appropriate discount rate herein for the following reasons:

(1)   I prefer the expert evidence of Mr. Spancer Wong over that contained in the DTZ reports in this regard because Mr. Wong’s reports were prepared for the purpose of assessing the value of the Subject Lands as at 17 October 2002 (the time when the Petition herein was presented, which has been agreed by the parties as the relevant time of valuation), whereas the date of valuation of the DTZ reports was 1 September 2011, which was nearly 9 years after the relevant date.  Since neither of the experts has explained how they came to their respective discount rates, I have no idea as to whether the difference in the rate adopted has anything to do with the time of valuation.  Unless there is any evidence which shows that the 40% discount applied by Mr. Spancer Wong is inappropriate, I do not think I should reject his expert evidence in this regard.

(2)   I do not think I should place any weight on the range of discount rate mentioned by Deputy High Court Judge Woolley in his Judgment in Wong Ho Ming Kenneth (supra) because it was only the agreed expert evidence given in that case.  There is no evidence, not to say any finding, that such a range of discount would be applicable to all cases, irrespective of time of valuation and location of the land.

(3)   Furthermore, while the Debtor’s own expert, Mr. Y.S. Wong, has been specifically instructed by the Debtor’s solicitors to comment on Mr. Spancer Wong’s expert reports, which the Debtor’s expert did by virtue of his report dated 14 April 2016, he did not say a single word on the discount rate adopted by Mr. Spancer Wong.  It can be inferred that even the Debtor’s expert agreed that the 40% discount rate adopted is reasonable in the circumstances.

Market value of the Subject Lands

44.  As aforesaid, it was agreed by counsel that the relevant date of valuation herein is 17 October 2002.

45.  For the purpose of assessing the value of the Subject Lands as at 17 October 2002, the parties agreed that the court might safely ignore other expert evidence placed before the court but focus on the following expert reports (in chronological order):

(a)   Mr. Spancer Wong’s report dated 20 January 2015;

(b)   Mr. Y. S. Wong’s report dated 16 April 2015;

(c)   Mr. Spancer Wong’s report dated 12 January 2016; and

(d)   Mr. Y. S. Wong’s report dated 14 April 2016.

46.  In summary, Mr. Spancer Wong’s opinion was that the total market value of the Subject Lands as at 17 October 2002 was $780,000, whereas the Debtor’s expert, Mr. Y. S. Wong, opined that the Subject Lands should be valued at $2,527,000.

47.  Given the burden is on the Debtor to establish that the value of the security held by BOC equalled or exceeded the full amount of the outstanding debt, I should examine Mr. Y. S. Wong’s reports first to see whether such a burden could be discharged.

Mr. Y. S. Wong’s reports

48.  In his first report, the Debtor’s expert explained that:

“For the valuation of the crude agricultural land, adjustment has been allowed for the discrepancies between the subject property and the most similar comparables in respect of various factors including location, accessibility, topography, size, layout, infrastructures, and date of transaction, in order to reduce the comparables to the same basis of the property for direct comparison and analysis.”

49.  Having set out the particulars of the Subject Lands, he concluded in paragraph 11.1 of his first report that the respective market values of the Subject Lands as at 17 October 2002 were as follows:

Property	Market value as at 17.10.2002
Lot No.1091 in D.D.8	$1,298,000
Lot No.1092 in D.D.8	$758,000
Lot No.954 in D.D.19	$146,000
Lot No.1240 in D.D.19	$325,000
Grand Total:	$2,527,000

50.  In support of his conclusion, the Debtor’s expert referred to Appendix 6 of the same report, in which he listed 8 comparables which, in his own words, were in his view the “most direct similar sale transaction comparables for assessment of market value”.

51.  Appendix 6 of the Debtor’s first expert report contained four pages of tables, which dealt with the four pieces of the Subject Lands separately.  He used the same 8 comparables to compare with each piece of the Subject Lands by reference to their location, topography, layout, accessibility, distance to the carriageway, fencing, existing use, overhead obstructions, type of ground surface, facilities/services, possibility of vehicle access, existence of U-turn, locality and advertisement effect & direct visibility from the highway.  He had also set out in details, in respect of each of the comparables, the basic information and the particulars of the transactions.

52.  The price range of these 8 comparables is quite large.  The one with the lowest transacted price was the first comparable (“Comparable 8-1”) which was only sold at $25.51 per square foot.  The most expensive one was the fourth comparable which was sold at $205.09 per square foot.

53.  The estimated market values per square foot of the Subject Lands are $148.99, $145.01, $67.03 and $124.35 respectively.  It is apparent that the Debtor’s expert did not simply take the average transacted price of the comparables, but had, as aforesaid, made adjustments based on the different features of the Subject Lands.  For example, as he explained further in paragraph 3.4.5 of his second report, the estimated market value of Lot No.954 in D.D.19 was lower than the other three pieces of lands because of the “unpopular environment of the graveyard in the proximity”.  However, he did not explain how exactly those figures were arrived at. 

54.  BOC’s expert, Mr. Spancer Wong, has launched an attack upon the reliability of the opinion of the Debtor’s expert by a number of grounds.  I will deal with them in turn below.

55.  Firstly, BOC’s expert pointed out that while the Debtor’s expert alleged that all the comparables he selected were within the agriculture zone in the relevant Outline Zoning Plan, as a matter of fact, the 2^nd, 3^rd, 4^th and 5^th comparables (numbered “8-2”, “8-3”, “8-4” and “8-5” respectively in the said Appendix 6) fell within an area zoned “Village Type Development” instead of “Agriculture”.  Since the sale price of land in “Village Type Development” zone would normally be higher than that in the “Agriculture” zone, it was submitted that these transactions should not have been adopted as comparables.

56.  In support, BOC’s expert has in Appendix III(a)(2) of his second report attached a plan No.S/NE­LT/6 dated 28 June 2002 prepared by the Planning Department which shows that comparables 8-2, 8-­3, 8-4 and 8-5 indeed fell within the “Village Type Development” zone as at 28 June 2002.

57.  To counter this argument, the Debtor’s expert referred to the fact that out of those 4 challenged comparables, three of which were sold by Assignments dated 28 June 2002, in other words, on the same day as the Outline Zoning Plan mentioned above.  The remaining one was sold by Assignment dated 31 July 2002.  He stated that the minimum period of time required to complete this kind of transactions under normal circumstances would be around 4 months. Since the transactions were completed in June to July 2002, he queried whether the purchasers of comparables 8­-2, 8-3, 8-4 and 8-5 could foresee the enhancement of value of these lands 4 months before the date of Assignments.

58.  In my view, the counter-argument of the Debtor’s expert was premised upon bases which cannot be established.

59.  Re-zoning of the lands – The most fundamental argument of the Debtor’s expert is that since comparables 8-2, 8-3, 8-4 and 8-5 were only upgraded in zoning on 28 June 2002, by the time when the purchasers entered into a sale and purchase agreement with the vendor, the respective pieces of lands were still located in the “Agriculture” zone (it seems this is the reason why the Debtor’s expert wanted to establish that it would take as long as 4 months to complete a transaction: the shorter the period required, the weaker this argument would be).  Hence, it was argued that these lands are suitable to be used as comparables despite the re-zoning.  However, there is no evidence at all that these lands were upgraded only in June 2002. 

60.  Despite the challenge raised by BOC, the Debtor’s expert had failed to answer by producing the Outline Zoning Plan at the material time (i.e. the approved plan No.S/NE-LT/5) or any other document in support of his assertion that comparables 8-2, 8-3, 8-4 and 8-5 fell within the “Agriculture” zone before 28 June 2002. 

61.  Mr. Ng, in his submission, explained that the Debtor’s expert did not understand that BOC’s expert was challenging the zoning of the aforesaid comparables.  Whether that is so or not does not matter, because at this stage of the hearing, the lack of evidence cannot be remedied even by a good explanation (Mr. Ng did not ask for any adjournment for the production of better expert evidence anyway).  In any event, I am afraid I cannot accept Mr. Ng’s explanation.  The second expert report prepared by BOC’s expert clearly stated his stance that the comparables in question were not suitable comparables.  It even stated that the Debtor’s expert had “quoted the wrong zoning type” (at page 2 of the report).  I do not think there can be any misunderstanding on the part of the Debtor’s expert.

62.  As a matter of fact, the Debtor’s expert had explained in his second report at paragraph 8.3 that because of time constraint:

“It was impossible to trace back in the Planning Department the historical zoning records of all relevant comparables transacted in 2002 because the Planning Department advised me that the zoning details of each individual agricultural lot had been closed online and none of historical zoning area were open to the public for verification. Envisaging the tight performance period and the onerous technical difficulties in ascertaining zoning verification, I had to rely on all original relevant data of comparable records from a long reliable source of comparables...”

63.  This court has no clue as to what exactly “original relevant data of comparable records” were.  In the light of the challenge of the BOC on the zoning of those comparables and the admitted difficulties on the part of the Debtor’s expert in getting the relevant zoning details, I do not think this court should take the bare assertion of the Debtor’s expert as far as the zoning before 28 June 2002 is concerned, and the presumption that those comparables were in the “Agriculture” zone cannot be accepted.  Indeed, Mr. Ng has in his reply submissions fairly accepted that there is no evidence placed before the court to show the zoning at the material time of the 4 comparables in question. 

64.  Time taken to complete a transaction – As aforesaid, the Debtor’s expert stated that the transactions of the comparables must have taken as long as 4 months to complete: 1 month for the vendor to find a purchaser and negotiate with him; 1.5 to 2 months to carve out the original single agricultural lot (Lot No.575 in D.D.8) and a further month for the preparation of an Assignment for execution.

65.  It is apparent that the time taken by a vendor to look for a purchaser and come to an agreement would vary from case to case.  I have great reservation on the allegation that it would take a minimum of one month for this to happen.

66.  More importantly, there is no evidence placed before the court to prove that comparables 8-2, 8-3, 8-4 and 8-5 were only carved out from their parental lot for the purpose of the transactions in June/July 2002.  Neither did the Debtor’s expert mention on what basis he has made such a presumption.  It is possible that those lands had been carved out well before the transactions in 2002.  If that was so, the transactions in question would not have to take a time as long as that suggested by the Debtor’s expert to complete.

67.  If either of the aforesaid bases cannot be established, the counter-argument of the Debtor’s expert falls away.

68.  In these circumstances, I accept BOC’s argument that these comparables should not be used in the valuation exercise.

69.  Secondly, BOC’s expert pointed out that while comparables 8-6 and 8-7 were still in the “Agriculture” zone when they were assigned on 29 April 2002, they were subsequently upgraded to “Village Type Development” on 28 June 2002.  He therefore opined that “there might be a chance” that the price agreed by the parties to the transactions included a hope value for the upgrading in zoning.  He supported this line of argument by saying that normally the Planning Department would consult the relevant District Council on re-zoning. However, since no enquiry had been made on this, the expert could not provide any details of the alleged consultation.  In view of this, he opined that comparables 8­-6 and 8-7 are inappropriate comparables. 

70.  While BOC’s expert did not say so expressly, I assume he was hinting that the consultation process would somehow leak the information of possible re-zoning to potential purchasers who would then be willing to purchase the lands involved at a higher price.

71.  With respect, I do not accept that this criticism made by BOC’s expert is a valid one.  The entire attack in this regard was built upon speculations. 

72.  As a matter of fact, comparable 8-6 was transacted only at $45.87 per square foot, which was within the range of price suggested by BOC’s expert himself in his valuation.  This demonstrates further that the allegation of inclusion of hope value in the transacted price is unfounded.

73.  Thirdly, BOC’s expert suggested that once comparables 8-2, 8-3, 8-4, 8-5, 8-6 and 8-7 are found to be unsuitable, there would only be two comparables left, namely comparable 8-1 which was transacted at $25.51 per square foot and comparable 8-8 which was transacted at $83.71 per square foot.  In his view, since these figures are either too high or too low, they should be disregarded according to usual valuation practice.

74.  Comparable 8-7 was sold at $114.81 per square foot. By reason of my rejection of BOC’s argument in relation to comparables 8-6 and 8-7, BOC’s criticism on comparable 8-8 is gone.

75.  Even if I were wrong in rejecting BOC’s argument in relation to comparables 8-6 and 8-7, there is still problem in this criticism raised by BOC’s expert: if there are only two comparables left, how can BOC’s expert say that the prices are either too high or too low?  This argument only works if there are more comparables so that the prices of those comparables may be compared with one another.  It does not work if there are only two comparables available.

76.  Mr. Yu, having sought instructions on the court’s enquiry raised on this issue, has informed that the court may disregard this point raised by his expert.  I would therefore say no more on it.

77.  In other words, I have only accepted one out of three grounds of attack raised by BOC’s expert, namely, that the Debtor’s expert should not have used comparables 8-2, 8-3, 8-4 or 8-5 as comparables in this valuation exercise, for it is not proved to the satisfaction of the court that these lands fell within “Agriculture” zone at the material time.

78.  As aforesaid, there were 8 comparables to start with.  Even disregarding 4 comparables, there are still 4 comparables left.  Does it mean that the court may make use of these 4 remaining comparables or even the other comparables which the Debtor’s expert had looked at (as listed under Appendix 2 of his second report) to work out an estimated market value itself?

79.  In my judgment, that is not feasible.

80.  This is because, as aforesaid, in the course of valuation, the Debtor’s expert had made adjustments to the data of the various transactions.  As he has not explained how exactly he had done it, this court has no clue as to the calculation that he had made.  Now that 4 of the 8 comparables have to be disregarded, further adjustments would be necessary before the estimated market value of the Subject Lands may be ascertained.  However, without evidence as to how exactly the Debtor’s expert had done it, this court cannot work out the calculation merely by reference to the materials before the court.

81.  I note that the Debtor’s expert has also calculated the average price per square foot of a large number of comparables which he could find in order to show the court the bigger picture of agricultural land transaction prices. 

82.  I have therefore considered whether the court may make any meaningful use of those average figures.  My conclusion is “No”, as it is unreliable to simply adopt these figures without adjustments by reference to the actual locations, etc. of the lands involved.  While the 4 pieces of lands are not too far away from one another, it can be seen from the reports of both experts that they should not be estimated as having the same market value per square foot.

83.  The consequence is that the reports of the Debtor’s expert have become useless as far as this application is concerned. 

84.  Therefore, there is nothing herein which proves that the security held by BOC equalled or exceeded the full amount of the outstanding debt as at the presentation date of the Petition herein.

Mr. Spancer Wong’s reports

85.  Given my conclusion above, strictly speaking there is no need to deal with the valuation of BOC’s expert because, to recap, his view was that the total market value of the Subject Lands was only in the sum of $780,000.  Whether this is accepted by the court or not, the Debtor’s case cannot be improved one way or another because the outstanding debt was of more than $1 million.  However, since parties have made arguments in respect thereof, I would say a few words on his valuation.

86.  If I were required to consider such valuation, I would not give much weight to it.  This is because it appears that, despite the many transactions which took place in 2001 to 2002 (as shown by Appendix 2 in the second report of the Debtor’s expert), BOC’s expert had not considered any of them other than the 4 comparables referred to in his reports.  On the face of the data put forward by the Debtor’s expert, there are certainly other transactions which could have been used for reference, but they were not so used.  For example, Lot No.438 of D.D.19 (which was sold on 3 May 2002 at $68.87 per square foot), Lot No.1016 section BRP of D.D.19 (which was sold on 5 December 2001 at $56.21 per square foot), and Lot No.913 sBss1 of D.D.8 (which was sold on 31 January 2002 at $83.70 per square foot (i.e. comparable 8-8 used by the Debtor’s expert – which BOC’s expert subsequently admitted in his own report that this could be used as a comparable)). 

87.  It was submitted on behalf of the Debtor that BOC’s expert had been deliberate in choosing the 4 comparables as he did so as to come to a conclusion of low market value and to justify an earlier verbal valuation which BOC’s expert gave on around 17 April 2001.  Without cross-examination of the expert, I hesitate to make such a finding, particularly when, as I said, it is strictly speaking not necessary for me to make any ruling on Mr. Spancer Wong’s reports.

Forced sale value of the Subject Lands

88.  For reasons of the aforesaid, the Debtor has failed to prove the forced sale value of the Subject Lands, and hence he cannot establish that the value of the security equalled or exceeded the amount of the outstanding debt.

89.  The Debtor’s challenge of the Bankruptcy Order on the basis of the value of security therefore fails.

Issue 1(c) – Non-compliance of section 6B

90.  While the petitioner in the case of Re Chan Chi Loi (supra) did state unequivocally in the Petition therein that he was willing to give up his security (and as a result section 6B(1) was satisfied), BOC in the present case has not mentioned about the Charging Order at all in the Petition herein.  Hence, there was a breach of section 6B by BOC.

91.  At the time when the appeal brought by the Debtor against Master Hui’s order (under which orders had been made for the enforcement of the Charging Order) was still pending, the Official Receiver pointed out to BOC by letter about the aforesaid non-compliance of section 6B.

92.  As a result, BOC applied and was granted an order by the court to amend the Petition.  By virtue of this amendment, BOC pleaded pursuant to section 6B(1)(b) that the estimated value of the Subject Lands was in the sum of $682,000 and that the Petition was not made in respect of the secured part of the outstanding debt.

93.  Mr. Yu did not dispute that there was a breach of section 6B.  However, he had put forward two grounds (and two grounds only) on the basis of which, so he submitted, the Bankruptcy Order was not “ought not to have been made”:

(a)   Since it is trite that an amendment takes effect from the date of the original document which it amends, the breach should be treated as having been rectified on the date of the original Petition.  Therefore, there was nothing wrong for the court to have made the Bankruptcy Order;

(b)   even if the argument above is not accepted, the effect of section 124(1) is that a formal defect or irregularity does not invalidate any bankruptcy proceedings in the circumstances of the present case.

94.  I am unable to accept Mr. Yu’s first argument.  The application before this court is made under section 33 under which one of the key issues is whether the Bankruptcy Order “ought not to have been made”.  In my view, the court, when considering this question, has to turn the clock back to the date of the Bankruptcy Order (i.e. 18 December 2002), and ignore what happened after this date, including the amendment order granted by the court subsequently. Any act in remedying any defect which existed at the time of the Bankruptcy Order must be disregarded, otherwise the purpose of section 33 would be defeated.

95.  For this reason, I also reject Mr. Yu’s argument that the Debtor should have opposed BOC’s amendment application rather than raising this argument pursuant to section 6B for the first time herein.  Nothing which happened after the date of the Bankruptcy Order should affect the decision of the court as to whether the Bankruptcy Order ought or ought not to have been made.  Hence, whether the Debtor has opposed BOC’s amendment application or not should not make any difference.  

96.  I now turn to BOC’s argument on section 124(1), which provides that:

“No proceeding in bankruptcy shall be invalidated by any formal defect or by any irregularity unless the court is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court.”

97.  As a starting point, I do not think section 124(1) is relevant at all in an annulment application made under section 33(1)(a).  Section 124(1) is a general provision applicable to all stages of the bankruptcy proceedings.  However, section 33(1)(a) is a specific provision governing the annulment application placed before this court.  I do not see why the court has to resort to section 124(1) which would only confuse the issues which this court has to resolve.

98.  Furthermore, even if section 124(1) should be considered in the context of a section 33(1)(a) application, I do not agree that the omission of security in the Petition is a “formal defect or irregularity” as such.  Without pleading anything in relation to the security held as required under section 6B, BOC has not established on the face of the Petition its entitlement to a bankruptcy order against the Debtor.  This is a fundamental matter but not just a formality, because the plea in this respect would affect not only the interest of the Debtor but also that of his other creditors.

99.  Hence, section 124(1) is not applicable to the present case by reason of its facts anyway.

100.  I am therefore of the view that the Bankruptcy Order ought not to have been made because the statutory requirement under section 6B was not satisfied by BOC.

Issue 1(d) – Service of the Statutory Demand

101.  As far as the service of the Statutory Demand is concerned, the Debtor’s complaint is made on two fronts. 

102.  Firstly, the Debtor alleged that BOC had failed to show that it had taken reasonable steps to bring the Statutory Demand to the Debtor’s attention.

103.  Secondly, the Debtor submitted that there was no basis on the part of BOC to allege that he had absconded or was keeping himself out of the way with a view to avoiding service.

104.  Before I deal with these grounds, it may be useful to recap the relevant Rules:

(a)   Rule 46(2) requires BOC to do all that was 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 Statutory Demand to be effected;

(b)   Rule 46(3) allows BOC to advertise the Statutory Demand on newspapers if, among other things, BOC knew, or believed with reasonable cause, that the Debtor had absconded or was keeping out of the way with a view to avoiding service.

Rule 46(2)

105.  The proper approach in dealing with the Debtor’s submissions has been explained by Barma J (as his Lordship then was) in Re Lela Tong (HCB 14214/2009, unreported, 15 June 2011):

“(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.” (at paragraph 8)

106.  To discharge his initial burden, the Debtor suggested that at the material time, there were other possible sources of information as to his whereabouts and BOC could have made enquiries with these sources without much difficulty.  These sources were:

(1)   Local villagers of Lam Tsuen (where the 2^nd Premises was situated); and

(2)   Messrs. Cheng, Chan & Co.

107.  It was submitted that since no enquiry had been made with these sources, BOC had not done all that was reasonable to bring the Statutory Demand to the attention of the Debtor.

108.  In relation to the local villagers, BOC’s evidence, as given by virtue of the 1^st and 2^nd affirmations respectively of Li Hon Ki, was that the server had tried to ascertain from the occupants of the units adjacent to the 2^nd Premises on 21 March 2002 and 15 July 2002 respectively:

(a)   On 21 March 2002, the server was unable to locate any occupants at the adjacent units of the 2^nd Premises even though he had rung the door bells, knocked on the doors and waited for 5 minutes.

(b)   On 15 July 2002, the server was able to speak to a female occupant at No.21 of Lam Tsuen Sun Tsuen.  She informed the server that she did not know the Debtor personally and she did not know his present whereabouts but knew that such occupant had moved out of the 2^nd Premises quite some time ago.

109.  The Debtor, in his 3^rd Affirmation, suggested that he was well known by the local villagers of Lam Tsuen Sun Tsuen who would have his contact information and that BOC had not made an enquiry which was thorough enough.

110.  Mr. Ng for the Debtor cited the observation of Recorder Jat made in Re To Cho Ping [2012] 1 HKLRD 125 to support his submission that BOC should have made further enquiries with the local villagers of Lam Tsuen Sun Tsuen:

“...In any event, even if the chances of obtaining that information are not particularly high, and such enquiry could be made without much difficulty, it would be reasonable to make it: see Re Pang Mei Lan May [2005] 1 HKC 319, 329 paras.25–26 per Barma J...” (at paragraph 39)

111.  I am not satisfied that the Debtor has discharged the initial burden.  There is nothing in the evidence placed before this court which suggests that, at the material time, there was any information available to BOC or its server that could lead them to believe that if further enquiries were made with other people at Lam Tsuen Sun Tsuen, the Debtor’s whereabouts would have been revealed.  For example, the Debtor has not suggested in the evidence filed in support of this application that BOC knew or ought to have known at the material time that he was “well known” in Lam Tsuen Sun Tsuen.  Thus, objectively speaking, since the server had already spoken to the occupier right next to the 2^nd Premises, in my view, the server (and hence BOC) should be regarded as having done all that was reasonable in locating the Debtor in the circumstances of the present case.

112.  I do not think what Recorder Jat observed as quoted above could assist the Debtor’s case. 

113.  Firstly, when applying this principle in Re To Cho Ping, his Lordship was facing a situation where although the debtor therein was nowhere to be found, there was no evidence that there was any difficulty on the part of the petitioner to contact the debtor’s husband who had also been declared bankrupt because of the same debt.  In these circumstances, it was of course reasonable for the petitioner to be required to contact the debtor’s husband in an attempt to find out the whereabouts of the debtor.

114.  Secondly, it is important to appreciate that Recorder Jat had only quoted part of Barma J’s judgment because that was what Recorder Jat needed in the circumstances of Re To Cho Ping.  However, what Recorder Jat quoted should not be taken out of context.  To achieve this, what Barma J stated in paragraphs 25 and 26 in Re Pang Mei LanMay [2005] 1 HKC 319 should be quoted in full:

“25. Rule 46(2) specifies the steps which must be taken by a creditor in relation to service of a statutory demand on a debtor. The creditor is required to do ‘all that is reasonable’ for the purpose of bringing the statutory demand to the debtor’s attention. Where personal service is practicable, this is required. 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.

26. Thus, where a creditor has one or more addresses for a debtor, personal service should ordinarily be effected at each of those addresses.  Where a creditor has one or more avenues by which an address for service might be obtained, he should, if it is reasonable for him to do so, follow up those avenues so as to obtain, if possible, an address for service.  Whether or not it will be reasonable to expect him to do so will depend on the particular circumstances of the case, including the ease with which the step in question can be taken, and the likelihood of obtaining information which might enable personal service to be effected.  If an enquiry can be made without much difficulty or effort, it will generally be reasonable to make it even if chances of obtaining information are not particularly high...”

115.  It can be seen that before his Lordship observed that it would generally be reasonable to make an enquiry which can be made without much difficulty even though the chances of obtaining information by this means are not particularly high, he had emphasised that whether it is reasonable to make a particular enquiry would depend on the particular circumstances of the case.  Ease of making the enquiry and the chances of success are but only two of the matters which have to be considered. 

116.  Going back to the circumstances of the present case, in my view, if the server could not talk to the immediate neighbour of the 2^nd Premises at all and make the enquiries, it would be reasonable to expect him to look for some other neighbours so that he could make enquiries as to the whereabouts of the Debtor.  It would not be too difficult to do so, and it would be reasonable for the server to be required to do so even though the chances of success were not particularly high.  However, since the server had talked to the immediate neighbour, who was able to confirm that the occupant of the 2^nd Premises had moved out for several years and that she did not know the present whereabouts of the Debtor, I do not think it is reasonable to require the server to make further enquiries with others in the neighbourhood, even if doing the same would not be too difficult.

117.  This conclusion is further supported by the fact that BOC’s server had in fact attended the 1^st Premises on an earlier occasion in late February 2002 in an attempt to serve the Statutory Demand on the Debtor.  The female occupant of the 1^st Premises informed the server that the Debtor had moved away and she did not know his whereabouts.  It is noted that both the 1^st and 2^nd Premises were located in Lam Tsuen Sun Tsuen.  If the Debtor was as well known in that vicinity as he alleged, it is strange that people could not tell his whereabouts.  With such previous enquiry results, it cannot be reasonable to require BOC’s server to do more.

118.  In relation to Messrs. Cheng, Chan & Co, I have no hesitation in coming to the conclusion that there is no merit in the Debtor’s argument.

119.  Messrs. Cheng, Chan & Co was the solicitors’ firm which acted for the Debtor in another set of proceedings (also related to the Judgment Debt herein) at the material time.

120.  On 6 March 2002, Robertsons wrote to Messrs. Cheng, Chan & Co and enquired whether it would arrange for an appointment for service of the Statutory Demand on the Debtor.

121.  On 13 March 2002, Messrs. Cheng, Chan & Co replied that they were unable to obtain instructions from the Debtor as he was still out of town and asked for a period of 7 days so that instructions could be obtained. 

122.  On 22 March 2002, Messrs. Cheng, Chan & Co confirmed in writing that they did not have instructions from the Debtor to accept service of the Statutory Demand against him.

123.  With this background, Robertsons cannot be required or expected to make further enquiries with Messrs. Cheng, Chan & Co.  Even if any further enquiries had been made, it would be naïve to expect that Messrs. Cheng, Chan & Co would inform Robertsons about any other address for service.  Just like Mr. Justice A Chan in Re Liu Yi Fang (HCB 5613/2013, unreported, 26 February 2014), I am surprised that the Debtor has taken this point, for it cannot be disputable that once a firm of solicitors had said that they had no instruction to accept service on behalf of their client, it would be the end of that avenue (see paragraph 34 of Re Liu Yi Fang (supra)).

124.  For the above reasons, it is my view that BOC had done all that was reasonable for the purpose of bringing the Statutory Demand to the Debtor’s attention.  The Debtor stated that BOC should not have attempted service at the 1^st Premises and the 2^nd Premises because BOC should have known that these properties had been sold already. However, given it cannot be disputed that these addresses were the only last addresses of the Debtors known to BOC at the material time, BOC could not be blamed for taking the trouble to serve the Statutory Demand on these addresses.

125.  The Debtor’s ground made in reliance of Rule 46(2) is thus rejected.

Rule 46(3)

126.  The question here is whether BOC knew, or believed with reasonable cause, that the Debtor had absconded or was keeping out of the way with a view to avoiding service. 

127.  By reference to a number of case authorities, by now it is clear that it is not enough for a petitioner to show merely that the debtor is nowhere to be found in his various last known addresses before reliance can be placed on Rule 46(3).  Something more as a matter of fact is required.

128.  In the present case, by virtue of the 1^st Affirmation of Ng Hak Chung which was filed by BOC back in October 2002, it is apparent that one of the grounds relied on by BOC in establishing its entitlement to advertise the Statutory Demand pursuant to Rule 46(3) was that Messrs. Cheng, Chan & Co had confirmed that they did not have instructions from the Debtor to accept service of the Statutory Demand.

129.  Given the fact that Messrs. Cheng, Chan & Co were representing the Debtor in another set of related proceedings which were ongoing at the material time, I am of the view that the refusal to authorise his solicitors in accepting service of the Statutory Demand or in arranging for service of such a demand amounts to “keeping out of the way with a view to avoiding service” under Rule 46(3).

130.  The Debtor explained in his 3^rd Affirmation filed in support of this application that Messrs. Cheng, Chan & Co had never informed him about the issue of the Statutory Demand at all.

131.  I am unable to accept this assertion made by the Debtor for the following reasons:

(a)   It can be seen from the correspondence exchanged between solicitors in March 2002 that when Messrs. Cheng, Chan & Co were unable to obtain instructions from the Debtor, they would have said so (as they did in their letter dated 13 March 2002).  If I were to accept the Debtor’s evidence that his solicitors had never informed him about the Statutory Demand, that would be equivalent to finding that Messrs. Cheng, Chan & Co had made a substantive reply to Robertsons on 22 March 2002 without actually having obtained instructions from the Debtor.  This is unlikely. 

(b)   Messrs. Cheng, Chan & Co initially asked for 7 days from 13 March 2002 to give a substantive reply to Robertsons.  By 22 March 2002, if Messrs. Cheng, Chan & Co were still unable to contact the Debtor, I see no reason why they would give such an answer to Robertsons rather than asking for further time. 

(c)   It should be borne in mind that Messrs. Cheng, Chan & Co were still representing the Debtor in another set of related proceedings.  It would be more likely than not that Messrs. Cheng, Chan & Co would do all they could to protect the Debtor’s interest.  In the present case, in the position of Messrs. Cheng, Chan & Co, giving an answer that they had no instructions to accept service of the Statutory Demand without prior express confirmation on the part of the Debtor one way or another is, in my view, certainly not something which legal representatives would do. 

(d)   This is particularly so in a case which could lead to a bankruptcy order being made against the Debtor which is a very serious matter.  Unless there is cogent evidence proving the same, I would be slow to accept that Messrs. Cheng, Chan & Co. were so unprofessional that they would reply Robertsons in the way they did without instructions.

(e)   It is true that, by looking at the expression “we have no instructions from our client to accept the service of the Statutory Demand” in isolation, it is open to the Debtor to argue that this reply was also appropriate in the scenario where the solicitors were unable to contact the Debtor and obtain his instructions.  However, I do not think the Debtor’s solicitors would have adopted such wordings before they could get hold of the Debtor in the circumstances of the present case.

132.  Hence, BOC was entitled to advertise the Statutory Demand pursuant to Rule 46(3).

133.  It should also be noted that the Debtor’s argument that Robertsons should have known that he was not within the jurisdiction by virtue of his then solicitors’ letter dated 13 March 2002 which stated that he was “still out of town” (see paragraph 121 above) is without merit.  The ability on the part of Messrs Cheng, Chan & Co to reply on 22 March 2002 (see paragraph 122 above) clearly indicated that the Debtor was no longer out of jurisdiction by then, and that was why his solicitors could finally obtain instructions from him on acceptance of service.

Issue 1(e) – Service of the Petition

134.  Relying on similar arguments, Mr. Ng for the Debtor submitted that there was no concrete evidence that the Debtor was evading service of the Petition and hence the substituted service order for the service of the Petition should not have been granted. 

135.  For similar reasons set out above, the Debtor’s arguments made in respect of the substituted service of the Petition are rejected. 

Issue 2 – Exercise of the court’s discretion

136.  As I have found that the Bankruptcy Order ought not to have been made by reason of the failure on the part of BOC to comply with section 6B, the next question which I have to consider is whether this court should exercise its discretion in annulling the Bankruptcy Order.

137.  In Kam Hung Cheung v Bank of China (Hong Kong) Ltd [2009] 3 HKLRD 597, the Court of Appeal held that:

“As the English Court of Appeal pointed out in Owo-Samson v. Barclays Bank Plc [2003] BPIR 1371, Askew v. Peter Dominic [1997] BPIR 163 and Artman v. Artman [1996] BPIR 511, the question for the court is: even if the bankruptcy order is annulled, will the debtor be declared bankrupt again? If in the court’s view there is evidence showing that this is unavoidable, the court may exercise its discretion to refuse to annul the bankruptcy order.” (at paragraph 37)

138.  Hence, the Debtor has to persuade the court that it is unlikely that he will be declared bankrupt again. 

139.  Mr. Ng for the Debtor submitted that, by the operation of section 33(4), there is no way that the Debtor would be made bankrupt again.  This is because after the Debtor has been discharged from bankruptcy automatically, all his debts owed to his creditors should be regarded as discharged and cannot be revived, as a result, there is no risk that the Debtor would face another bankruptcy order.

140.  Section 33(4) provides that:

“Where the court annuls a bankruptcy order under this section or section 20I, any sale or other disposition of property, payment made or other thing duly done by or under the authority of the Official Receiver, a nominee or a trustee or by the court is valid, but if any of the bankrupt's estate is then vested in such a trustee, it shall vest in such person as the court may appoint or, in default of any such appointment, revert to the bankrupt on such terms (if any) as the court may direct, and the court may include in its order such supplemental provisions as may be authorized by the rules.”

141.  The reliance on section 33(4) seems to me to be misconceived.  I think what Mr. Ng was minded to rely on should be section 32, pursuant to which, subject to certain exceptions, a bankrupt is released from all the bankruptcy debts upon his automatic discharge.

142.  However, in my view, the said section 32 cannot assist him either.  Upon its annulment, the Bankruptcy Order would be treated as if it has never been made. That being the case, it would be treated as if there was no “automatic discharge” as such.  So the benefit of automatic discharge pursuant to the said section 32 would not be available to the Debtor.

143.  Therefore, the Debtor still has to satisfy this court that he has the financial ability to settle the entire undisputed outstanding debts.

144.  In this regard, perhaps the most direct evidence placed before this court is the valuation reports of the Subject Lands.  However, in the light of this court’s finding above (see the discussions under issue 1(b) (value of the Security – Market value of the Subject Lands), those reports cannot assist the Debtor at all.

145.  Another piece of evidence which sheds light on the financial ability of the Debtor has been given by virtue of the 2^nd Affirmation of the Debtor (at paragraph 4 thereof) where the Debtor stated that in about October 2001 he started a shrimps-farming business in the PRC with a partner.  However, such a business was a failure and as a result the Debtor had suffered financial loss.  Eventually the business was closed down in around July 2004. 

146.  The Debtor has also produced 2 letters (with his 2^nd Affirmation) which show that different potential buyers have offered $1,750,000 and $1,800,000 in April 2013 and June 2015 respectively for the purchase of the Subject Lands.  However, Mr. Ng has placed no reliance thereon in his argument.  In fact, neither counsel has ever referred to these letters throughout the hearings.  I would therefore say no more on these letters, save as to observe that in any event, even if those interested buyers were serious at the material time about their respective offers, there is no evidence that the market condition has not changed further since then.  In the present context, the focus should be on the market price of the Subject Lands at present (in respect of which there is no evidence) and I do not think it is correct for this court to assume that the market price of the Subject Lands has remained unchanged since June 2015.  After all, there is absolutely no evidence which gives the court any clue in this regard.

147.  By the same token, the expert reports prepared by DTZ with a valuation date of 1 September 2011 cannot assist this court.

148.  On the other hand, the Official Receiver has informed the court that while 11 unsecured creditors had been mentioned in the Statement of Affairs submitted by the Debtor with total liabilities of more than $14 million, she has received only two proofs of debt for the total sum of $1,394,238.85.  Only $26,583.70 had been recovered from the Debtor’s estate.  No dividend had been declared.

149.  To conclude, as the evidence now stands, it appears to me that even if the Bankruptcy Order is annulled, another bankruptcy order against the Debtor is unavoidable.  Hence, bearing in mind the reminder of the Court of Appeal that the discretionary power of this court should be exercised with great caution, I consider it inappropriate for me to exercise my discretion in annulling the Bankruptcy Order.

150.  I should also mention that when coming to the above conclusion, I have decided not to take into account the alleged lateness (12 years) on the part of the Debtor in taking out this application, as advocated by Mr. Yu for BOC.  This is because, as submitted by Mr. Ng, despite the Debtor’s knowledge of the Bankruptcy Order back in 2003, he only received the relevant papers of the bankruptcy proceedings in around June 2014 and therefore he only learnt of the defects of the Statutory Demand and the Petition by then. 

151.  Although according to the Official Receiver’s letter dated 23 June 2014 (which was said to be the reason why the bankruptcy proceedings papers were served on the Debtor in June 2014) the Official Receiver only requested BOC to serve the ex parte summons for the amendment application on the Debtor, I think the fact relied on by Mr. Ng can be inferred because any ex parte summons for amendment of Petition would normally attach a draft Amended Petition, and from which the Debtor would appreciate the previous omission of the Charging Order therefrom.  Further, since Mr. Yu had not corrected Mr. Ng on his presentation of this factual matter (Mr. Yu had impressed this court that he had no hesitation to do so throughout these proceedings should the circumstances require it), I would take it that this was as a matter of fact a correct description of what happened.  On that basis, it certainly cannot be said that there was a 12 years’ delay on the part of the Debtor in bringing this application as suggested by Mr. Yu.  

Issue 3 – Reasons for non-appearance

152.  In Kam Hung Cheung v Bank of China [2009] 3 HKLRD 597, the Court of Appeal has adopted Chu J (as her Ladyship then was)’s summary of the legal principles applicable to an annulment application. One of those principles is as follows:

“...where a bankruptcy order was made in the absence of the debtor, or where the underlying judgment in favour of the creditor was obtained by reason of the debtor’s failure to give Notice of Intention to Defend, then the debtor must provide reasonable and credible explanations for his absence or failure to give Notice of Intention to Defend.”

153.  Mr. Ng argued on behalf of the Debtor that it was a must for the debtor in Kam Hung Cheung (supra) to give a reasonable and credible explanation for his absence only because the underlying judgment debt in that case was incurred by virtue of a default judgment.  He submitted that since the Judgment Debt in relation to the case before this court was not obtained by reason of the Debtor’s default in appearance in the civil proceedings, he is not required to explain his absence in the bankruptcy proceedings which led to the Bankruptcy Order.

154.  With respect, this argument must be rejected. 

155.  It was clearly Chu J’s view (which was adopted by the Court of Appeal) that a reasonable and credible explanation is required to be given by the debtor whenever the underlying judgment or the bankruptcy order was made in default of his appearance.  

156.  Even if, as in the present case, the underlying judgment was not given by default of appearance, so long as the bankruptcy order was so made, the debtor would be obliged to explain for his absence.

157.  Hence, the Debtor’s explanation for his absence has to be examined.

158.  Mr. Ng submitted that the Debtor has a reasonable explanation for his absence in that he had no notice of the bankruptcy proceedings until after the Bankruptcy Order had been made against him.

159.  In my view, even if the Debtor did not have any notice of the bankruptcy proceedings, that was entirely because he had adopted a “catch me as you can” approach.  As I have mentioned in the earlier part of this Judgment, at the material time, Messrs. Cheng, Chan & Co. was representing the Debtor in another set of ongoing proceedings which was related to this one.  In the circumstances, I would have thought it would be natural for the Debtor to instruct Messrs. Cheng, Chan & Co to accept service of documents in these proceedings for him.  However, he did not so instruct his solicitors.  As a result, BOC’s solicitors could not serve any documents in these proceedings on Messrs. Cheng, Chan & Co, which would have been the safest way by which the Debtor could be kept informed of any hearing date. 

160.  The consequence of adopting such an evasive attitude was that BOC had to serve the Petition herein by, among other things, advertisement. 

161.  If the Debtor was not, by reason of such a mode of service, aware of the hearing date of the Petition which led to the grant of the Bankruptcy Order in his absence, the Debtor could not blame anyone but himself.  His lack of notice of the same cannot amount to a reasonable explanation for his absence. 

162.  Since this prerequisite confirmed by the Court of Appeal has not been satisfied, even if I have come to a different conclusion regarding the exercise of my discretion under Issue 2 above, this application for annulment is bound to be dismissed anyway.

CONCLUSION

163.  For the above reasons, the Debtor’s application under section 33(1)(a) is dismissed.

COSTS

164.  There be a costs order nisi that the Debtor shall be liable to pay BOC and the Official Receiver the costs of this application.

165.  This order nisi shall become absolute upon the expiry of a period of 14 days from the date hereof.  Any application to vary this order nisi shall be made before the expiry of the aforesaid period.

166.  In the event no application for variation of costs order is made pursuant to the above, the costs of BOC and the Official Receiver shall be summarily assessed pursuant to Order 62 rule 9A(1)(a) of the Rules of the High Court on paper (unless any party objects in writing within 14 days).

167.  For the purpose of the summary assessment, BOC shall lodge and serve its statement of costs within 7 days after the expiry of the 14 days’ period mentioned in paragraph 165 above.  The Official Receiver is allowed to rely on her statement of costs lodged and served together with her letter dated 2 September 2016.  The Debtor shall lodge and serve his grounds of objection within 7 days upon his solicitors’ receipt of BOC’s statement of costs. 

168.  The summary assessment will be conducted upon expiry of the 7 days’ period mentioned in the preceding paragraph no matter whether the Debtor has lodged and served any grounds of objection.

169.  The Debtor’s own costs shall be taxed in accordance with Legal Aid Regulations.