RE HO KAI WA, FRANCIS

HCB 1480/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1480 OF 2014

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J U D G M E N T

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Introduction

1. The petitioner commenced this petition for the debtor’s bankruptcy in February 2014.  The petition is brought on the strength of a debt of about $927,000 being the legal costs payable by the debtor (the allocaturs were issued in November 2009).

2. The debtor opposes this petition on the following grounds:

(a) service of (1) the statutory demand, and (2) the petition, on him was “irregular” and/or “improper” and/or “invalid”;

(b) he has a meritorious defence to this petition.

These grounds will be discussed below.

Service of statutory demand

3. The proper service of a statutory demand is a pre-requisite for the commencement of bankruptcy proceedings: s 6A, Bankruptcy Ordinance (Cap 6).  The provisions for service must be strictly adhered to: Re Lam Lai Wah Susanna [2002] 4 HKC 334, 339-340 and 341.

4. The relevant provisions for service of statutory demands are rr 46 and 49, Bankruptcy Rules (Cap 6A).

5. In this petition, the affirmation of service deposes that:

(1) there were 4 addresses of the debtor last known to the petitioner (“the debtor’s addresses”);

(2) the debtor’s addresses were served by (a) ordinary post and (b) advertisement in a Chinese newspaper widely circulated locally;

(3) further to sub-para (1) and (2) above, service was also attempted on one of the debtor’s addresses in Hunghom by personal service unsuccessfully;

(4) despite the earlier sale of a property in Diamond Hill (being another of the debtor’s addresses) (“the Diamond Hill address”), service was attempted on the Diamond Hill address.  Naturally this was unsuccessful;

(5) the same process was attempted (also unsuccessfully) at two other of the debtor’s addresses respectively at Marina Cove and To Kwa Wan.

6. As a matter of fact, the petitioner served the statutory demand by way of substituted service (by newspaper advertisement and ordinary post (which was effected on 1 November 2013)).

7. Based on the above, the petitioner argues that the requirements of r 46(2), Cap 6A have been complied with.  That rule stipulates:

“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” (emphasis supplied).

8. Because the exact whereabouts of the debtor was unknown to the petitioner at the time of the attempted service, it was not practicable for personal service to be effected.  The word “reasonable” connotes (at least for the purpose of r 46(2)) a range of, instead of a particular, conduct.  What the petitioner has done here obviously falls within the range of reasonableness.  The debtor thought that the petitioner was relying on r 46(3) (absconding debtor) (para 12, debtor’s skeleton submissions), but the petitioner clarified at the hearing this was not so.

9. There is no statutory requirement that the debtor has to be present in Hong Kong when service of the statutory demand was effected (Re Damnerncharnwanit [2000] 1 HKC 579), and so whether he was in fact present is irrelevant.

10. The debtor seeks to advance this part of his case by referring to certain observations in Re To Cho Ping [2012] 1 HKLRD 125, para 31 to 40.  Insofar as that decision dealt with r 46(3), Cap 6A, it is irrelevant.  In relation to the requirements of r 46(2), the court there criticized the petitioner for failing to contact the debtor’s husband to bring her notice to the statutory demand. But that was based on the observation in Re To Cho Ping that the petitioner should have no difficulties to contact the husband (both the husband and the debtor owed the same debt to the petitioner, and were earlier sued together).

11. The last mentioned criticism cannot properly be made here.

12. For the above reasons, I do not consider there is merit in this part of the debtor’s objections.

Service of petition

13. Reliance is placed here by the debtor on s 4(1)(b), Cap 6 and r 59, Cap 6A.  The former provides:

“A bankruptcy petition shall not be presented to the court … unless the debtor … is personally present in Hong Kong on the day on which the petition is presented”.

The latter provides:

“Service of a creditor’s petition shall be effected by the creditor … delivering a sealed copy of the petition to the debtor.

If the court is satisfied by affidavit … that prompt personal service cannot be effected because the debtor is evading service … or for any other cause, it may order substituted service to be effected … ”.

14. In this petition, service was effected by substituted service (again by newspaper advertisement and ordinary post (which was effected on 25 April 2014)).

15. The debtor argues that the above statutory provisions have not been fulfilled because he left Hong Kong (for the Mainland) on 23 April 2014 and only returned on 25 April 2014 at 6:28 pm which was after the usual business hours.

16. I disagree with the above argument and agree with the petitioner’s submissions below:

(a)        despite his frequent trips between Hong Kong and the Mainland, the totality of the evidence (including the debtor’s own evidence) shows that the debtor was domiciled and/or ordinarily resident in Hong Kong at the time of service of the petition: s 4(1)(a) and/or (c)(i), Cap 6;

(b)       in any event, the debtor’s presence in Hong Kong for part of the day on 25 April 2014 is sufficient for the purpose of s 4(1)(b), Cap 6: Re Lam Michael Alan Nigel HCB 3929/2000 (28 May 2002), para 24.

17. There is thus no merit in this part of the debtor’s oppositions either.

Merits of defence

18. This objection is premised in gist on the debt herein being a “provable” debt in the debtor’s earlier bankruptcy (see para 19 below), and hence ought not constitute a proper ground for this petition.  It can be summarized as below.

19. The debtor was adjudged bankrupt in November 2002 (“the 2002 bankruptcy”), and was discharged from the said bankruptcy in November 2006 (4 years afterwards) (“the Nov 2006 discharge”).

20. Disciplinary proceedings were commenced against the debtor, and resulted in the findings and order of the disciplinary tribunal in February 2008 (more than one year after the debtor’s said discharge).  Costs were awarded against the debtor at the time, and this became the basis for the allocaturs (and the debt) referred to in para 1 above.

21. The debtor argues that:

(1) although costs were only awarded against him in February 2008 (subsequent to the Nov 2006 discharge), the related disciplinary proceedings were commenced in September 2004 (before the Nov 2006 discharge);

(2) the costs later awarded him in February 2008 should fall within the meaning of “bankruptcy debt” in the 2002 bankruptcy;

(3) the petitioner ought to have filed proof of debt with the trustee in the 2002 bankruptcy, rather than commence this petition.

22. So far as it is relevant to this petition, s 2, Cap 6 defines a “bankruptcy debt” as:

“(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy” (emphasis supplied).

Further, s 34(1) and (3), Cap 6 defines “provable” debts as:

“Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, tort, promise or breach of trust shall not be provable in bankruptcy.

Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the date of the bankruptcy order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the bankruptcy order” (emphasis supplied).

23. The debtor argues that his obligation to pay the costs of the disciplinary proceedings was incurred before the commencement of the 2002 bankruptcy.

24. It is accepted by the debtor the English authorities are against the above argument.  In Glenister v Rowe [2000] Ch 76 (CA), the English court of appeal decided that:

“The fact that an order for costs (a) creates an obligation to pay money and (b) is a contingency in legal proceedings is not sufficient, however, to make a claim that the court should exercise its discretion to make such an order a ‘contingent liability’ of the person against whom such an order may ultimately be made. It is accepted that before an order is made there is no present liability to pay. Nor can there be a future liability: there is no certainty that the court will … make such an order” (p 84);

“… it is necessary to identify something agreed or some act done by [the debtor] to give rise to a liability on his part … ” (p 84). [The court then concluded that there was no such act]

25. It is also said that the debtor’s above argument is supported by some Australian authorities.  Specifically the debtor seeks assistance from:

(a) In Environmental & Earth Sciences Pty Ltd v Vouris [2006] FCA 679 (primary judgment (which brought about the related costs order later) was pronounced before the appointment of the administrator in the liquidation);

(b) McDonald v Deputy Commissioner of Taxation [2005] NSWSC 2.

26. However, as the petitioner rightly points out, the two Australian authorities were not concerned with Australian bankruptcy, but company liquidation, proceedings.  The courts’ observations therein have to be understood in the light of the statutory provisions applicable to those proceedings (and not bankruptcy).  Further, as the High Court of Australia observed in Kenneth John Foots v Southern Cross Mine Management Pty Ltd and Others [2007] HCA 56 dated 7 December 2007:

“… [the debtor] argues that the costs order made against him was a provable debt within the meaning of s 82 of the Bankruptcy Act as it was a debt or liability arising out of an obligation incurred before his bankruptcy … ” (para 7 thereof);

“Two aspects of s 82 should be noticed at once. First, not all of the debtor’s debts and liabilities are provable in bankruptcy. Notably, the classes of provable debts are narrower than those encompassed by s 553 of the Corporations Act 2001 (Cth) as regards corporate insolvency; the most obvious omission is of claims in the nature of unliquidated damages which arise ‘otherwise’ than by reason of a contract, promise or breach of trust (s 82(2)) [here the limitations are similar to our s 34(1), Cap 6 (quoted in para 22 above)]. …

A second aspect of s 82 flows from the first. Contrary to the [debtor’s] submissions, there is no express or implied textual support for the notion of a debt being provable if it is incidental to, or consequent upon, a debt which is itself provable … ” (para 9 and 11 thereof).

The court then discussed the nature of a costs order:

“… First, the award is discretionary but generally that discretion is exercised in favour of the successful party … Further, although capable of estimation, the actual monetary value of an award of costs cannot be ascertained until those costs are taxed or otherwise assessed” (para 25 thereof).

Having done so, the court concluded:

“… the [debtor’s] first submission … that his exposure to an adverse costs order arose from an ‘obligation’ incurred prior to his bankruptcy. This submission should be rejected: no such obligation arose until the costs order was made … ” (para 35 thereof).

27. I do not find any difference between the nature of the costs order made against the debtor by the disciplinary tribunal, and the costs order involved in the Kenneth John Foots decision.  In so finding, I also take comfort to be in the company of the decision in Law Society of Hong Kong v Wong Siu Ki Oswald and Others [2001] 4 HKC 636, 638.

28. To conclude, I do not consider this to be a valid ground of objection to this petition.

Conclusion

29. There will be the usual bankruptcy order with costs against the debtor.

Other matters

30. The debtor also asks me in effect to go behind the allocaturs when exercising my discretion in this petition.  I agree with the observation in the Lam Michael Alan Nigel decision (para 30 thereof) that there is no sufficient reason to do so, taking into account the venue open to, and the more than ample opportunity for, the debtor to do so elsewhere earlier; he failed to do so without giving satisfactory reasons for the failure.

31. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.