RE LAM CHIK SING

HCB 9148/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 9148 OF 2006

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J U D G M E N T

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1.  This is an application by Lam Chik Sing, who was made bankrupt by an order made on 31 January 2007, to annul his bankruptcy order.  The application was made under section 33(1)(a) of the Bankruptcy Ordinance, Cap. 6, on the grounds existing at the time the order was made that the bankruptcy order ought not to have been made.  It was asserted by the applicant that the petitioning creditor, Hong Kong Chinese Textile Mills Association, had failed to do all that was reasonable to bring the statutory demand and/or the bankruptcy petition to his attention, nor had the petitioner taken all reasonable steps or efforts to effect service of the statutory demand and the petition on him.

2.  I will first set out the relevant background matters.

3.  The petitioner had in the past let shop premises to the applicant at Shop B, Ground Floor, No. 40 Tai Po Road (“the shop premises”).  The parties had entered into two tenancy agreements in succession, dated 29 May 1997 and 13 November 2000.  After the tenancy under the second agreement had expired, the applicant held over the shop premises on monthly basis.  The address of the applicant stated in the first and second tenancy agreements was Room 2018, Hang Chui House, Cheung Hang Estate, Tsing Yi, New Territories (“the Cheung Hang Address”).

4.  All the court documents in DCCJ No. 6226 of 2005 and the documents in the bankruptcy proceedings were served on the applicant at the Cheung Hang Address.  There is an issue whether this was the usual and last known address of the applicant.  The applicant alleged that he had in June 1997, moved to Flat F, 2^nd Floor, Block 4, Yuet Wu Villa in Tuen Mun, New Territories (“the Tuen Mun Address”), shortly after his marriage in early June 1997, and that the Tuen Mun Address was known to the petitioner.

5.  The applicant had carried on the business of a hairdresser in the shop premises under the name of “Art Salon”.  This business was closed down in about November 2005 and the applicant had returned the keys of the shop premises to the petitioner under cover of a letter which was received by the petitioner on 5 December 2005.  At that time, there were arrears of rent outstanding and the petitioner had instructed solicitors to issue a letter of demand to the applicant dated 30 November 2005 claiming $68,300, which was sent to the Cheung Hang Address.

6.  The petitioner brought proceedings against the applicant in DCCJ No. 6226 of 2005 in December 2005 claiming arrears of rent.  The petitioner obtained an order for substituted service of the writ, and default judgment was obtained on 9 May 2006 in the sum of $64,800 with interests and costs.

7.  A statutory demand for the judgment debt was issued.  This was served by an advertisement in a Chinese newspaper on 27 June 2006.  The process server made an affirmation to depose to the unsuccessful attempts to serve the demand on the applicant personally at the Cheung Hang Address.  He stated that he was informed by the petitioner and verily believed the petitioner “does not have any knowledge of the address of [the applicant] other than [the Cheung Hang Address]”.

8.  The court gave leave to file the bankruptcy petition and this was presented in November 2006.  Attempts were made to serve the applicant personally with the petition at the Cheung Hang Address, to no avail.  The petitioner applied for substituted service of the petition and this was supported by an affirmation in which the process server again stated he was informed by the petitioner and verily believed the petitioner “does not have any knowledge of the address of [the applicant] other than [the Cheung Hang Address]”.  An order for substituted service of petition was made on 19 December 2006.

9.  As mentioned earlier, the bankruptcy order was made on 31 January 2007, in the absence of the applicant.  Two proofs of debt were submitted claiming a total of $91,949.60.

10.  Evidence was filed by the applicant and by a director of the petitioner in this application.  I have also considered the various affirmations of the process server filed on the petitioner’s behalf in the District Court action and in the bankruptcy proceedings.

11.  I find on the evidence the applicant had moved to the Tuen Mun Address in June 1997 and that the Cheung Hang Address was not his usual or last known address at all material times.  I see no reason to disbelieve the applicant here.

12.  As for the petitioner’s assertion that the letter of its solicitors dated 30 November 2005 sent to the Cheung Hang Address had been obtained or received by the applicant, I find to the contrary.  Again, I see no reason to reject the applicant’s evidence he had never received this demand letter.  I decline to infer from the contents of the applicant’s letter to the petitioner, which was received by the petitioner on 5 December 2005, that it must have been sent in reply to the demand letter of 30 November 2005.

13.  There are other conflicts as to fact raised in the evidence filed.  I do not find it necessary to resolve them for the purpose of the present application.  The applicant has alleged on the second occasion he went to the petitioner’s office, which was in early June 1997, he had supplied his business registration documents to the petitioner and had also informed the petitioner’s staff, Yeung Ming and Fung Yuk Moon, that he had moved to the Tuen Mun Address.  He saw Mr Yeung wrote down the Tuen Mun Address.  Mr Yeung and Mr Fung had since passed away.  The petitioner would appear to have retained no record of the Tuen Mun Address and has asserted no knowledge of this address.

14.  I turn to the relevant legal principles.

15.  Proper service of the statutory demand is a pre-requisite for the commencement of bankruptcy proceedings under section 6A of Cap. 6.  The requirements as to service of the statutory demand must be strictly adhered to (Re Lam Lai Wah Susanna [2002] 4 HKC 334 at 340C and 341F to G, paras 16 and 20 and on appeal in CACV No. 385 of 2002, 4 March 2003, para 20).

16.  Miss Anna Siang, appearing for the petitioner, relied on the authorities which stated that the court is not bound as a matter of course to annul the bankruptcy order even if it is satisfied the order ought not to have been made, but has a discretion to exercise in the light of all the circumstances whether the order should be annulled (Delph Sing v Wood (1918) 25 CLR 497; Re Lawson (1939) 11 ABC 137; Re Ditford, ex parte Deputy Commissioner of Taxation (NSW) (1988) 83 ALR 265; and Chan Chi Ho Lincoln, HCB No. 9158 of 2007, 2 October 2008, Kwan J at para 19).

17.  Failure to serve the statutory demand properly is an extremely serious matter.  That the petitioning debt is apparently not in dispute is wholly immaterial.  Failure to serve the demand is not just a formal defect or irregularity, it renders defective the petition founded on the demand.  It does not appear to me it would be at all appropriate to exercise the discretion not to annul the bankruptcy order where service of the statutory demand was defective.

18.  Under rule 46(2) of the Bankruptcy Rules, the creditor is required 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.  The debtor has the initial burden of showing that the creditor has not done all that was reasonable for the purpose of bringing the demand to his notice, by reference to the information actually or constructively available to the creditor at the time the service was attempted.  Once he has done this, the burden is on the creditor to show that the steps which allegedly should have been taken could not or would not have resulted in the statutory demand coming to the debtor’s attention (Re Pang Mei Lan May [2005] 1 HKC 319 at 332I to 333B, para 37).  If the evidence leaves it uncertain whether or not such a step would have been of utility, it would be right to give the debtor the benefit of the doubt (Pang Mei Lan May, supra at 332H, para 36).

19.  Whether or not it would be reasonable to expect the creditor to take certain steps would depend on the particular circumstances of the case, including the ease with which the step in question could be taken, and the likelihood of obtaining information which might enable personal service to be effected.  If an enquiry could be made without much difficulty or effort, it would 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 are good, it may be reasonable to take steps which are more onerous or involve the expenditure of greater time or effort (Pang Mei Lan May, supra at 329F to G, para 26).  What is reasonable is to be judged objectively in the light of the information actually or constructively available to the creditor at the time (Re Li Wai Man, HCB No. 211 of 1999, 1 November 1999, Yuen J, at para 31).

20.  The applicant asserted that the petitioner could and should have conducted a business registration search of Art Salon.  If the petitioner had done so, the petitioner would have known that the Tuen Mun Address was given as the applicant’s residential address, regardless of whether the petitioner had made or kept any record of the applicant’s change of address in June 1997.  The petitioner’s director explained on oath that a business registration search had not occurred to him and he did not provide the name of Art Salon to the petitioner’s solicitors.  I attach no weight to the explanation given in Miss Siang’s submission which appeared to me to be an attempt at ex post facto rationalization.

21.  I am inclined to think that a business registration search was a reasonable step which the petitioner and its solicitors could and should have taken, having regard to the following matters:

(1) The shop premises were let to the applicant for his business and the name of the business was known to the petitioner.

(2) Even though the business had ceased operation in November 2005, there would have been a business registration for the business with the particulars of the residential address of the proprietor.  This would have provided a useful check to the petitioner if the Cheung Hang Address or some other address was given as the residence of the applicant.

(3) A letter of the petitioner’s solicitors sent to the applicant by post to the Cheung Hang Address on 13 December 2005 was returned marked “addressee unknown”.  Even though subsequent letters sent to the applicant at that address by post in September, November and December 2006 had not been returned undelivered, when the process server of the petitioner attempted personal service of various documents on the applicant in late 2005, early, mid and late 2006, he had made enquires of the persons living at that address and in the neighbouring premises as well as of the caretaker.  All the information received indicated that there was probably no one known by the applicant’s name living at the Cheung Hang Address.

(4) A search at the Business Registration Office would not have been onerous or costly.

22.  In these circumstances, I hold that the petitioner had failed to do all that was reasonable for the purpose of bringing the statutory demand to the applicant’s attention.  The service of the demand was defective.  The order for substituted service of the bankruptcy petition would not have been made by the Master, if he had been made aware of the petitioner’s failure to do all that was reasonable to effect personal service of the petition on the applicant, that the Cheung Hang Address should not be the only address known to the petitioner, and that the petitioner would have practical means of finding out the residential address of the applicant from the business registration records.  The service of the petition was likewise defective.

23.  The bankruptcy order must be annulled due to the defective service of the statutory demand and the petition.  I order the annulment of the bankruptcy order and that the bankruptcy petition is to be dismissed.  A notice of the annulment is to be gazetted by the Official Receiver at the petitioner’s expense.

24.  Mr Jeremy Chan for the applicant sought costs of this application on an indemnity basis.  This was resisted by Miss Saing.  She submitted this is not a case where there is evidence to show that the petitioner knew of an alternate address and had deliberately not informed the court of it.

25.  I do not regard that as sufficient to exercise my discretion in the petitioner’s favour.  The manner in which the petition was initiated and carried on constituted an affront to the court (Lam Lai Wah Susanna, CACV No. 385 of 2002, supra para 30).

26.  Also, as I have indicated in the course of argument, regardless of whether the petitioner’s officers were told by the applicant of his change of address, it should have been very obvious to the petitioner and its legal advisers that the petitioner had failed to take the reasonable step of conducting a business registration search and that this has rendered the service of the statutory demand defective.

27.  Notwithstanding this, the petitioner had chosen to contest the application to the end.  To mark the court’s disapproval, an order for indemnity costs is warranted.  I order the petitioner to pay the costs of the applicant in this application on an indemnity basis. 

28.  The Official Receiver seeks costs of this application under rule 32A(1)(b) of the Bankruptcy Rules in the sum of $5,000 and his fees and the expenses in the bankruptcy estimated at the total sum of $21,712.44 in the event the bankruptcy order is annulled.

29.  I order the petitioner to pay the Official Receiver’s costs of this application on a gross sum basis in lieu of taxed costs in the sum of $5,000.  I also order the petitioner to pay the fees and expenses of the Official Receiver in this bankruptcy in the amount as estimated.

30.  Lastly, I make an order that the applicant’s own costs be taxed in accordance with the Legal Aid Regulations.