RE KWONG NGAI PING

HCB9447/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 9447 OF 2003

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REASONS FOR JUDGMENT

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1. This is an application by Mr Kwong Ngai Ping to annul the bankruptcy order made against him on 23 July 2003. On 8 April 2004, after hearing the parties, I dismissed the application with costs. These are my reasons.

2. The background facts leading to this application may be summarized as follows.

The Tenancy Agreement

3. By a tenancy agreement dated 4 July 1997 ("the Tenancy Agreement"), the petitioner as landlord rented to Mr Kwong as tenant Shop No.11G (now known as Shop No.34), Ground Floor (also known as Tuen Mun Paris London New Your Cinema Shopping Centre), Hong Lai Garden, Nos.117-157, Tuen Mun Heung Sze Wui Road, Nos.141-145 Ho Pong Street and 2A-2I Tsing Yin Street, Tuen Mun ("the Shop"), for a term from 7 July 1997 to 31 January 1999. The monthly rent was HK$12,500. Pursuant to the Tenancy Agreement, Mr Kwong had paid the petitioner a deposit pf HK$43,569.

4. The address of Mr Kwong stated in the Tenancy Agreement was Room 20D, Block 1, Hong Lai Garden, Tuen Mun ("the Hong Lai Garden Address").

HCA13606/1998

5. On 13 August 1998, the petitioner commenced HCA13606/1998 against Mr Kwong for breach of the Tenancy Agreement. It was pleaded in the statement of claim that Mr Kwong had failed to pay rent and other charges since 1 March 1998. Because of his default, the deposit was liable to be forfeited and the petitioner forfeited the tenancy by re-entering the Shop on 26 June 1998. The petitioner claimed for forfeiture of the deposit and HK$59,550.77, which consisted of arrears of rent of HK$48,333.33, management fees of HK$2,320, air-conditioning charges of HK$3,568.93, rates of HK$1,566 and interest on the rent of HK$3,762.51.

6. The writ of summons was served on Mr Kwong by registered post at the Hong Lai Garden Address on 14 August 1998. No acknowledgement of service was filed by Mr Kwong.

7. By summons dated 19 October 1998, the petitioner applied for judgment in default of notice of intention to defend. The summons was again served on Mr Kwong by ordinary post at the Hong Lai Garden Address on 2 November 1998.

8. The application came before Master Kwan on 16 November 1998. Mr Kwong was absent and the master entered judgment for the plaintiff on, inter alia, forfeiture of deposit and the sum of HK$59,550.77 with interest on HK$48,333.33 at the rate of 3.5% per month from 27 June 1998 to the date of judgment and thereafter at judgment rate until payment in full ("the Judgment").

Bankruptcy proceedings

9. Relying on the Judgment, the petitioner issued a statutory demand on 31 October 2002. Attempts to serve Mr Kwong personally at the Hong Lai Garden Address were unsuccessful. On 11 January 2003, the statutory demand was advertised in the Sing Tao Daily. As at the date of the statutory demand, the amount of debt stood at HK$89,068.62, consisting of the judgment sum of HK$59,550.77 and interest of HK$29,517.85.

10. Twenty-one days lapsed since the advertisement of the statutory demand and it was not met. On 29 April 2003, Master Ho granted leave to file the petition herein, which was done on 16 May 2003.

11. Attempts to serve the petition on Mr Kwong personally at the Hong Lai Garden Address likewise failed. On 25 June 2003, Master Kwang ordered that the petition be served on Mr Kwong by substituted service by advertisement once in Sing Tao Daily and ordinary post at the Hong Lai Garden Address.

12. The hearing of the petition took place before Master Kwang on 23 July 2003. Mr Kwong was absent. The master then made a bankruptcy order against him.

The grounds for annulment

13. Mr Kwong relied on two grounds in support of his application to annul the bankruptcy order. He first contended that the service of both the statutory demand and the petition was irregular. He next disputed the debt upon which the petition was based. I will consider these grounds in turn.

Service of the statutory demand

14. I first deal with the law. In Re Lam Lai Wah Susanna [2002] 4 HKC 334, I endeavoured to set out the legal position in paragraphs 14 to 22 thus :

"Statutory scheme

14. The main issues concern service of the Statutory Demand and the Petition. The importance of proper service of a statutory demand and a bankruptcy petition on the alleged debtor in a creditor's petition, as is the case here, can be gathered from the statutory scheme as provided in the Ordinance and the Bankruptcy Rules (the Rules). To this I now turn.

15. Under s 6(2) of the Ordinance, a creditor's petition may be presented to the court in respect of a debt if but only if at the time the petition is presented, among other things, the debt is a debt which the debtor appears to be unable to pay or to have no reasonable prospect of being able to pay. Section 6(2) is subject to ss 6A to 6C. For present purposes, only certain parts in s 6A are pertinent. In essence, those parts provide that (1) the debtor appears to be unable to pay the debt concerned if but only if the debt is immediately payable and the debtor has not complied with the statutory demand served on him and (2) the debtor appears to have no reasonable prospect of being able to pay the debt if but only if the debt is not immediately payable and the debtor has not complied with the statutory demand served on him.

16. Proper service of the statutory demand on the debtor is thus a pre-requisite for the commencement of bankruptcy proceedings under s 6A if the petition must have been preceded by the demand.

17. The requirements as to service of a statutory demand are found in rr 46 and 49 of the Rules.

18. Rule 46 provides :

(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.

Mr Wong, counsel for the petitioner, conceded that r 46(3) does not apply here.

19. The relevant provisions in r 49 read :

(1) Where under section 6A of the Ordinance the petition must have been preceded by a statutory demand, there must be filed in court, with the petition, an affidavit proving service of the demand.

(2) ...

(3) ...

(4) ...

(5) If neither paragraph (3) nor (4) applies, the affidavit must be made by a person having direct personal knowledge of the means adopted for serving the statutory demand, and must ―

(a) give particulars of the steps which have been taken with a view to serving the demand personally;

(b) state the means whereby (those steps having been ineffective) it was sought to bring the demand to the debtor's attention; and

(c) specify a date by which, to the best of the knowledge, information and belief of the person making the affidavit, the demand will have come to the debtor's attention.

(6) The steps of which particulars are given for the purposes of paragraph (5)(a) must be such as would have sufficed to justify an order for substituted service of a petition.

(7) If the affidavit specifies a date for the purposes of compliance with paragraph (5)(c), then unless the court otherwise orders, that date is deemed for the purposes of these rules to have been the date on which the statutory demand was served on the debtor.

(8) ...

(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).

20. Rule 49(3) and (4) relate to personal service, which is not the case here. I should add that in the past, there was no procedure in place for the vetting of petitions before they were filed under Rule 49(9). The lacuna was addressed on 8 February 1999 when a system was introduced in the High Court Registry whereby the master in charge of the Bankruptcy List vets the information of service of the statutory demand for compliance with the rules prior to the filing of the petition. Recently, the vetting procedure is enshrined in a new practice direction which will come into effect on 15 July 2002.

21. These requirements as to service must be strictly adhered to because of the importance of establishing with certainty the period within which a debtor has to comply with the statutory demand. Non-compliance gives rise to consequences which go far beyond those that would follow from any ordinary action : Re Cheung Hoi Chu, ex p International Bank of Asia Ltd (A Creditor) (HCB 865, 866, 867 & 868/1998, unreported) per Le Picheon J (as she then was) at p.8. She held that it was not sufficient because somehow the statutory demand came to the notice of the debtor.

22. Rule 46(2) requires a creditor to do all that is reasonable for the purpose of bringing the statutory demand to the debtor's attention depends on the circumstances of the case. Whether a creditor has done all that is reasonable must be judged objectively but in the light of the information actually or constructively available to the creditor at the time of the service : see Re Li Wai Man, ex p Hang Tung Securities Limited [1999] HKCU 1310, per Yuen J (as she then was). The rule clearly envisages personal service if practicable in the particular circumstances. If personal service is impracticable (and there must be good reasons to demonstrate that that is the case), other modes of service are permissible provided that they are reasonable within the meaning of the rule."

15. The question is whether the petitioner had acted reasonably for the purpose of bringing the statutory demand to Mr Kwong's attention.

16. Ms Hui, counsel for the petitioner, submitted that the Hong Lai Garden Address was the only usual and last known address of Mr Kwong. When personal service at that address was unsuccessful, the petitioner had done all that was reasonable in the circumstances for the purpose of bringing the statutory demand to Mr Kwong's attention by advertising it once in the Sing Tao Daily.

17. Mr Kwong took a number of points. He first alleged that when he vacated the Shop, he left his contact address, that is, No.22 Ground Floor, Ming Wai Building, Heung Sze Wui Road ("the HSW Address") and telephone number. This is denied by the petitioner. In my view, it is incumbent upon Mr Kwong to condescend upon particulars as to when and with whom he left the contact address and telephone number. That he had failed to do so. In the circumstances, I am not prepared to accept his bare allegation.

18. Mr Kwong next alleged that a certain Ms Chan of Tung Lee Realty, the estate agent responsible for leasing the Shop for the petitioner, should have all his contact information. This is, in my view, nothing more then mere speculation. And I reject it without hesitation.

19. Mr Kwong finally relied on other tenancy agreements he made with another landlord regarding the HSW Address. In those agreements, he stated not only his residential but also business addresses. He went on to say that other than the Hong Lai Garden Address, he also used the HSW Address as contact. But the fact is Mr Kwong had not stated the HSW Address in the Tenancy Agreement at all. Indeed, there is simply no evidence before me to show that the petitioner was at the material times aware of the HSW Address. I am unable to accept this point either.

20. For the above reasons, I rule that the Hong Lai Garden Address was the only usual and last known address of Mr Kwong at the material times and that the petitioner had complied with the relevant provisions in the Bankruptcy Rules for service of the statutory demand. The service was thus regular.

Service of the petition

21. Service of the petition is governed by rules 31 and 59 of the Bankruptcy Rules :

"31. Service of petition, etc.

When the debtor is not in Hong Kong, or cannot be found, the court may order service on him of the petition or any order made against him, or of any summons issued for his attendance, to be effected within such time and in such manner as it thinks fit."

"59. Service

(1) Service of a creditor's petition shall be effected by the creditor or his solicitor, or a person in their employment, delivering a sealed copy of the petition to the debtor.

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

(3) Where an order under paragraph (2) has been carried out, the petition shall be deemed to have been duly served on the debtor."

22. I have already ruled that the Hong Lai Garden Address was the only usual and last known address of Mr Kwong. When personal service of the petition at that address was unsuccessful, the petitioner was entitled to apply for and Master Kwang was correct in making the order for substituted service under rule 59 of the Bankruptcy Rules. I will therefore rule that service of the petition was regular as well.

Disputing the debt

23. I now turn to Mr Kwong's contention that he does not owe the debt in question. Again, I begin by citing the relevant legal principles.

24. In a disputed creditor's petition, the burden rests on the debtor to show that the debt is bona fide disputed on substantial grounds : ICS Computer Distribution Ltd [1996] 3 HKC 440. When the debt in question is a judgment debt, the following general principles apply :

(1) When hearing a bankruptcy petition, the court has jurisdiction to go behind a judgment and to determine whether there was good consideration for the debt in question. But the court would not normally go behind a judgment unless there was sufficient reason to do so : Re Onslow, ex p Kibble (1875) LR 10 Ch 373, Re Beauchamp, ex p Scotch Whisky Distillers Ltd (1888) 22 QBD 83, followed in Re Yu Tat Yum Robert, ex p Fortune Retail Holdings (Beijing) Ltd [1999] 2 HKC 799.

The judgment was conclusive unless the consideration (ie. the cause of action or the substance of the claim) could be questioned : Re Beauchamp, ex p Beauchamp [1904] 1 KB 572.

(2) As a general principle, the validity of the judgment debt would only be inquired into, where there was evidence of fraud or collusion, or miscarriage of justice, or there was no good petitioning creditor's debt, apart from the judgment : see Re Hawkins [1895] 1 QB 404, Re Flautau, ex p Scotch Whisky Distillers Ltd (1888) 22 QBD 83, Re Saville (1887) 4 Morr. 277, Re Lipsocombe (1887) 4 Morr. 43, Re Fraser [1892] 2 QB 633; Re Howell (1915) 84 LJKB 1399, Re Turvey (1918-1919) B & CR 128, Dawodu v American Express Bank [2001] BPIR 983.

25. Mr Kwong first alleged that he had paid HK$1,000 or HK$800 to the petitioner as charges for posting up a business name sign. Since the petitioner had failed to do so, he was entitled to vacate the Shop. Ms Hui rightly pointed out that Mr Kwong had failed to produce any documents to show that he had paid the charges as alleged. But even assuming that he had in fact paid such charges and taking his case at its highest, it does not amount to any defence to the petitioner's claim in HCA13606/1998. For there is no provision in the Tenancy Agreement providing for the posting up of Mr Kwong's business name. Any such agreement would have to be independent of and separate from the Tenancy Agreement. Any breach thereof did not give Mr Kwong a right to treat the Tenancy Agreement as repudiated.

26. Mr Kwong next alleged that he had surrendered the Shop to the petitioner. The petitioner denied that that was the case. Ms Hui submitted that on evidence his case is incredible and in any event did not point to an unequivocal acceptance of possession on the petitioner's part. I agree. In any event, taking Mr Kwong's case at its highest, it is no defence to the petitioner's claim in HCA13606/1998.

27. Finally, Mr Kwong relied on the deposit and denied that he owed any arrears of rent. This point is clearly misconceived. Under clause 3 of the Tenancy Agreement, the deposit was paid as security for the due observance and performance of his obligations thereunder. In case of default, the petitioner is entitled to forfeit the deposit under clause 5(a) of the Tenancy Agreement. Mr Kwong is not entitled to set off the deposit against the petitioner's claim : see Wong Kam-kong v. Intercontinent Mercantile Co. [1968] HKLR 331, Pendes Industries Limited v. Wong Wan Chu, HCA1194/2000, unreported.

28. For the above reasons, Mr Kwong has failed to show any bona fide dispute on substantial grounds against the debt. Nor has he showed any ground why I should go behind the Judgment.

Conclusion

29. In the circumstances, Mr Kwong has failed to substantiate his application. I dismiss it accordingly with costs, to be taxed if not agreed.