RE LUO XING JUAN ANGELA

HCB 1418/2019

[2019] HKCFI 2674

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1418 OF 2019

________________________

________________________

________________________

J U D G M E N T

________________________

1.  I have before me a bankruptcy petition. The debtor was a tenant of the creditor. She was made bankrupt on 15 October 2014 in bankruptcy proceedings HCB 5398/2014 on a petition presented by a third party on 18 July 2014.

2.  As the debtor failed to pay rent, the creditor, without knowledge of the debtor’s bankruptcy, brought proceedings against her in the District Court in the action DCCJ 8/2015, seeking vacant possession, arrears of rent, mesne profits, damages and costs.  In about September 2015 the creditor discovered that the debtor had been bankrupted.  On 24 September 2015, Judge Andrew Li made an order for vacant possession and costs which was not affected by s 12 of the Bankruptcy Ordinance (Cap 6).  On 6 May 2016, apparently having given leave to proceed, Judge Andrew Li further ordered the debtor to pay the creditor a sum of $722,101 (which included arrears of rent, mesne profits and damages), interest and costs.

3.  In September 2017, part of the costs so ordered was taxed by a taxing master, who made a provisional order for payment.  The final allocatur for this part was issued on 13 December 2017 for $112,134.40.

4.  On 8 November 2017, the creditor issued a statutory demand to the debtor requiring payment of, inter alia, the above taxed costs, together with taxing fee and interest on the taxed costs, totalling $182,214.56.

5.  On the same date the creditor’s solicitors attempted unsuccessfully to serve the statutory demand on the debtor personally at an address in Hung Hom (“Address”), which was an address the solicitors had earlier obtained from the debtor apparently during the litigation in the District Court.  They also sent the statutory demand to the Address by ordinary post, but it was not stated in the affirmation of service whether this was returned or not.

6.  On 4 December 2017, the solicitors caused a notice of the statutory demand to be advertised in a Chinese newspaper in Hong Kong.

7.  On 17 July 2018 the solicitors went to the Address again for personal service of the statutory demand but could not find the debtor.  They sent the statutory demand by post to her again at the Address, with a letter stating they would come again on 30 July 2018 for service.  The letter was however returned on 23 July 2018 marked “no such person”.  The solicitors nevertheless went to the Address on 30 July 2018 and again they were unable to find the debtor there.

8.  After requisitions were raised and answered in relation to the service of the statutory demand, on 21 January 2019, a Master gave leave for the creditor to file a petition against the debtor.

9.  Meanwhile, since there were funds in the estate to repay all the debts in the first bankruptcy, the bankruptcy order was annulled by order on 12 September 2018 on the application of the Official Receiver as the debtor’s trustee in bankruptcy.

10.  The petition in the present proceedings was issued on 11 March 2019 and served personally on the debtor on 19 March 2019.

11.  On 30 April 2019, the debtor filed a notice of intention to oppose the bankruptcy petition and an affirmation at the same time, raising mainly two grounds in opposition: first, the creditor could not validly issue to her or serve on her a statutory demand at a time when she was still subject to the first bankruptcy; secondly, the service of the statutory demand was irregular.

Existence of first bankruptcy

12.  There is in my view no merit in the first point.  First, the debts for which the statutory demand was issued arose after the date of the first bankruptcy.  They were not provable in that bankruptcy: see s 34 of the Bankruptcy Ordinance.  In fact, a proof of debt covering those debts was to that extent rejected by the Official Receiver in October 2017.  As such the creditor did not need leave of the court under s 12 of the Bankruptcy Ordinance to commence any proceeding against the debtor to recover those debts: Law Society of Hong Kong v Wong Siu Ki Oswald & Others [2001] 4 HKC 636; Re Chow Shun Yung (unrep, HCB 5334/2004, 10 June 2005), §4.  The existence of a prior bankruptcy does not in my view preclude a creditor of a subsequent debt (which as such is not provable in the first bankruptcy) from proceeding against the debtor, including issuing a statutory demand and presenting a bankruptcy petition.  The law does not prohibit a subsequent supervening bankruptcy of an undischarged bankrupt; in fact it provides for it — see s 44 of the Bankruptcy Ordinance; Fletcher, The Law of Insolvency (5^th ed), §§5-025 & 10-033–10-035.

13.  Secondly, in the present case, the first bankruptcy was eventually annulled pursuant to an order made under s 33 of the Bankruptcy Ordinance.  The effect of annulment, generally, is that the matter annulled is treated as having had no legal existence at all and the status quo ante is restored: Suen Kin Ning v The Incorporated Owners of Tsui Wah Building & Another [2011] 1 HKLRD 982, §26; see also Tan Kah Eng v Tanm Eng Khiam [2010] 4 HKLRD 526 §§9-23.  In the present case, the effect of the annulment is to remove the bankruptcy order ab initio and to restore the debtor to her original position as if the bankruptcy order had never been made.  Even if there were any impediment to the issuance and service of the statutory demand upon the debtor arising from the first bankruptcy, it had been retrospectively removed.

Service of statutory demand

14.  It seems to me, however, that there was a problem with the service of the statutory demand.  In her affirmation dated 30 April 2019, the debtor states that she had moved out of the Address since around 6 May 2015, and that the creditor had her mobile phone number (which she sets out) which had not been changed since she started living in Hong Kong and could contact her through that number whenever necessary. 

15.  The creditor has filed no evidence to contradict this statement.  At the hearing Ms Chong tried to say that there were telephone calls made but I refused to allow such information to be adduced from the Bar table.  Moreover, it also cast doubt on the statement in the second affirmation of the clerk of the creditor’s solicitors that, except the Address, the creditor had no information or knowledge of any other address or whereabouts of the debtor.  Even if technically true, the statement would be misleading if in fact the creditor had the telephone number of the debtor. None of the affirmations of service referred to any telephone calls having been made or explained whether the telephone number had been used for the purpose of arranging service and, if not, why not.  The affirmations, by rule 49(5) of the Bankruptcy Rules (Cap 6A), are supposed to give particulars of all the steps which have been taken with a view to serving the demand personally.  If a certain step has not been mentioned in the affirmations, the inference is that it has not been taken.

16.  Under rule 46(2), a creditor has to 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.  Rule 46 has to be read together with rule 49.

17.  Advertisement of the statutory demand as a means of service is permissible under rules 46 and 49 in appropriate circumstances.  However, if this particular route is to be adopted, rules 46(2) and 49(5) to (7) must be satisfied: see Re Li Wai Man, ex parte Hang Tung Securities Limited (HCB 211/1999, 1 November 1999).  Among other things, a petitioner has to have taken all such steps as would have sufficed to justify an order for substituted service of a petition (see rule 49(6)). 

18.  In the present case, the clerk went to the Address, but was unable to serve the debtor there or ascertain that the debtor was still living there.  The management office was unable to give any information.  The woman who answered the door on 17 July 2018 was not the debtor, and told the clerk that she was a tenant and had moved in since one year before.  On 23 July 2018 the solicitors also received the letter posted to but returned from the Address marked “no such person”.  On 30 July 2018 a man at the Address also told the clerk that he had moved in for one year.  All this indicated to the creditor that the debtor had not been living at the Address since before November 2017. 

19.  On the evidence, it seems to me that the creditor had not done all that was reasonable for the purpose of bringing the statutory demand to the debtor’s attention and to cause personal service of the demand to be effected.  There is no evidence of any attempt to contact the debtor by telephone so as to obtain an address for service or make an appointment for service or otherwise to inform her of the statutory demand such as by sending a copy to her phone so as to bring it to her attention.  As Barma J said in Re Pang Mei Lan May [2005] 1 HKC 319 §§25–26: 

“ 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 the chances of obtaining information are not particularly high.  On the other hand, where the chances of obtaining information that might enable personal service to be effected are good, it may be reasonable to take steps which are more onerous or involve the expenditure of greater time or effort.  It should of course be borne in mind that the purpose of requiring the creditor to take these steps is to bring the statutory demand, failure to comply with which is likely to have serious consequences for the debtor, to the debtor’s attention.”

Instead, the creditor simply used the Address, and applied to the Master for leave to issue a petition, stating “the Petitioner has no information or knowledge of any other address or whereabouts of the Judgment Debtor” without disclosing that he had her telephone number.

20.  At the hearing Ms Chong tried to place reliance on rule 46(3) but that applies only if the creditor knows or believes with reasonable cause that the debtor has absconded or is keeping out of the way with a view to avoiding service, and there is no real prospect of the sum due being recovered by execution or other process.  Moreover, if this provision is relied upon, then by rule 49(8) an affidavit must be made by the creditor himself or by a person having direct personal knowledge of the circumstances stating the matters specified in that rule.  None of that has been done in the present case.  The court cannot infer simply from the fact that the debtor has not paid the debt, that she has been evading service.  In fact, when the debtor found out about the bankruptcy petition, she went to the creditor’s solicitors’ office to accept personal service of the petition on 19 March 2019.  The grounds for satisfying the court of the condition in rule 46(3)(a) cannot be the mere assertion of the creditor: Re Lorea Solabarrieta Cheung (unrep, HCB 3938/2014, 9 April 2015), §15.

21.  It has been said time and again that failure to serve a statutory demand in accordance with the statutory requirements is not just a formal defect or irregularity, but is “an extremely serious matter” and renders defective the petition founded on the demand: Re Lam Chik Sing, ex parte Hong Kong Chinese Textile Mills Association [2009] 2 HKLRD 107 at §17; Re Cheung Hoi Chu, ex parte International Bank of Asia Limited (HCB 865, 866, 867 and 868 of 1998, 24 December 1998), pp 9-10; Re Lorea Solabarrieta Cheung, supra, §§30-31.

22.  For these reasons the petition has to be dismissed.  There will be an order nisi that the creditor do pay the debtor her costs of the petition.