RE CHEUNG PAK MING

HCB 5451/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 5451 OF 2004

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J U D G M E N T

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The application

1.  This is an application made under section 33 (1)(a) of the Bankruptcy Ordinance, Cap.6 by Cheung Pak Ming (“the debtor”), to annul a bankruptcy order made against him on 11 August 2004, on the following grounds existing at the time the bankruptcy order was made that such an order ought not to have been made:

(1)	the default judgment obtained against the debtor in DCCJ No. 6482 of 2002 (“the District Court Action”), upon which the creditor’s petition was founded, was irregular;
(2)	the statutory demand and the petition were not properly served on the debtor; and
(3)	he has a good defence on the merits in the District Court Action.

2.  The application is opposed by the petitioning creditor, University Heights Holding Limited (“the petitioner”).  The Official Receiver has not taken any position in this application and has asked to be excused from attendance.

The background facts

3.  It would be convenient to set out the relevant facts in chronological order.

4.  A tenancy agreement dated 20 October 2000 was entered into between the petitioner and Good Fame Enterprises Limited (“Good Fame”) whereby the premises at Flat C2, 1^st floor, University Heights, Nos. 42-44 Kotewall Road, Hong Kong (“the Premises”) were let to Good Fame for 12 months from 8 September 2000 to 7 September 2001.  Good Fame is a company owned by the debtor and his wife and they were and are the only directors.  The tenancy of the Premises was taken for the sole purpose of providing a residence to the debtor and his family.

5.  Good Fame did not pay rent from 1 July 2001 to 7 September 2001.  The debtor claimed that he had surrendered possession of the Premises to the petitioner on the expiry of the lease on 7 September 2001.  The petitioner claimed that vacant possession was delivered only on 26 February 2002.

6.  The debtor deposed that after he and his family had moved out of the Premises they had lived in rented premises in Wanchai and in July 2002, he and his family left Hong Kong for the United Kingdom where they have since resided.  Among the documents exhibited by the debtor is a bank statement of HSBC issued to him in July 2004, sent to the debtor’s address in Liverpool.

7.  On 24 November 2001, the registered office of Good Fame was changed to an address in Hing Yip Commercial Centre, No. 280 Des Voeux Road Central, which is the office of the secretarial company providing company secretarial services to Good Fame.

8.  On 18 October 2002, the petitioner issued the writ in the District Court Action against Good Fame and the debtor.  The debtor was sued on the basis that he had signed a guarantee in September 2000 in favour of the petitioner to guarantee the liability of Good Fame under the tenancy agreement.  The debtor has denied that he had signed any guarantee in favour of the petitioner in September 2000.  He alleged that although he did sign a guarantee, that was in August 2001, in anticipation of the signing of a new tenancy agreement, when the existing lease was to expire in September 2001, but as no new tenancy agreement was eventually signed, the guarantee he signed was of no effect.

9.  According to the Amended Statement of Claim in the District Court Action, the petitioner claimed against Good Fame and the debtor the total sum of HK$176,685.10, made up of a claim for rent from 1 July 2001 to 7 September 2001 of HK$45,336.67, mesne profits from 8 September 2001 to 26 February 2002 of HK$115,613.34, electricity charges of HK$8,294.49, water charges of HK$543.00, and overdue interest on arrears of HK$6,897.60.

10.  The writ was served on Good Fame at its former registered office and on the debtor at the Premises by registered post on 22 October 2002.  By then, the debtor had, to the petitioner’s knowledge and on the petitioner’s case, moved out of the Premises since February 2002.  An affirmation of service was made by the process server on 16 November 2002, deposing that the writ served on the last known address of the debtor was not returned through the Dead Letter Service of the Post Office, and he believed it would have come to the debtor’s notice within 7 days of posting.

11.  The petitioner issued a summons to amend the Statement of Claim in April 2003 and the summons was served on the debtor also at the Premises by ordinary post.

12.  On 12 May 2003, the petitioner obtained default judgment against Good Fame and the debtor for the amount claimed in the Amended Statement of Claim.

13.  In August and September 2003, the petitioner attempted personal service of the statutory demand for the judgment debt on the debtor at the Premises.  According to the affirmation of the process server filed in the bankruptcy proceedings in May 2004, on two occasions, he was denied access to the Premises by a watchman of the building who told him that that the debtor had moved out of the Premises for at least 9 months.  The process server deposed that the debtor was evading service and that an advertisement in a newspaper in Hong Kong giving notice of the statutory demand would have come to the attention of the debtor, as he is a Hong Kong resident holding a Hong Kong Identity Card.  He stated that the petitioner had no information or knowledge that the debtor had left the jurisdiction.  On 10 November 2003, the petitioner placed an advertisement in a Chinese newspaper circulating in Hong Kong giving notice of the statutory demand.

14.  On 27 May 2004, the petition based on the statutory demand was presented.  The process server again attempted service of the petition on the debtor at the Premises and to no avail.  This time, the process server was informed by a watchman that he knew nothing about the debtor and that the Premises were vacant.  An application for substituted service of the petition by an advertisement in a newspaper was made and an order was granted on 14 July 2004 for substituted service of the petition by advertisement in a Chinese newspaper and by sending a copy of the petition by post to the Premises.  At the hearing of the petition on 11 August 2004, the bankruptcy order was made in the absence of the debtor.

15.  On 31 August 2004, the debtor was informed by his bank that his account was frozen by reason of the bankruptcy order.  He claimed that was when he first became aware of the default judgment and the bankruptcy proceedings.  On 9 September 2004, he filed an affirmation in support of his application to set aside the default judgment.  This application to annul the bankruptcy order was made on 14 September 2004.

16.  The Official Receiver has realised assets of HK$1.5 million odd, being the credit balance in the bank accounts of the debtor.  Other than the petitioner which has filed a proof of debt of HK$209,360.54, there is only one other creditor with a proof of debt of HK$207.10.  It is not in dispute that the debtor is solvent.

Was the default judgment a regular judgment

17.  The debtor claimed that the writ did not come to his notice as he had moved out of the Premises by the time service was attempted in October 2002, as the petitioner well knew.  Besides, he was residing in the United Kingdom, out of the jurisdiction, by that time.  It was submitted by Mr Lau on his behalf that the mode of service by registered post was not available when the debtor was not within the jurisdiction, see Order 10 rule 1(2)(a) of the Rules of the District Court and Hong Kong Civil Procedure 2004, Vol. 1, paragraph 10/1/12.  On that ground alone, the service of the writ was irregular and the default judgment was irregular.

18.  Mr Lau further submitted that there must be serious doubts about the assertion of belief in the affirmation of service that the writ sent to the Premises would have come to the knowledge of the debtor within 7 days after posting.  As the writ was allegedly sent by registered post, the recipient would be required to sign for receipt; if the mail is unable to be delivered on two separate occasions, a notification would be issued informing the recipient to collect the mail at a post office; and if the mail is not collected within 14 days, it would be returned to the sender.  Mr Lau submitted that in this instance, the writ would have been returned to the sender as the debtor did not sign receipt, he had left Hong Kong by this time.

19.  Accordingly, the affirmation of service did not satisfy the requirement in Order 10 rule 1(3)(b)(i) of the Rules of the District Court that in the opinion of the plaintiff the writ sent to the usual or last known address of the defendant will have come to the defendant’s knowledge within 7 days thereafter.  This opinion must be based on grounds reasonably held (Lau Kwok Hung v Tse Ping Man [1999] 4 HKC 397 at 404D-E, Philips Securities (HK) Limited v Lam Chi Bin Stanley [2002] 1 HKC 432 at 436 H-I).

20.  Miss Hui pointed out on behalf of the petitioner that no documentary evidence was adduced by the debtor to support his claim that he had left Hong Kong to reside in the United Kingdom in July 2002, other than a bank statement issued to the debtor at an address in Liverpool in July 2004.  But I see no reason to doubt the debtor’s statement on oath that he had left Hong Kong with his family to reside in the United Kingdom in July 2002.

21.  Miss Hui also contended that as it was deposed to in the process server’s affirmation in November 2002 that the writ was not returned through the Dead Letter Service, it would be logical to infer that the envelope containing the writ must have been collected by the debtor through some sort of mail re-direction arrangement with the post office.  Hence, the service of the writ was in accordance with Order 10 rule 1(2)(a) of the Rules of the District Court and the judgment was regular.

22.  There is no reason I should make that inference.  The allegation that the debtor had made some sort of mail re-direction arrangement with the post office was raised only in counsel’s submission served yesterday, the debtor did not even have an opportunity to deal with this in his evidence.  In any event, I do not think it is for the debtor to disprove the allegation that he had received the writ sent by registered post, having already deposed that he was outside the jurisdiction at that time.  The whole idea of requiring service by post to be done by registered post is for there to be some ready proof of posting and receipt in the event of a dispute.  If it is the petitioner’s contention that the debtor had received the writ sent by registered post, I would expect the petitioner to produce proof of posting and receipt.  Proof of posting was not even exhibited to the affirmation of service of the process server.  If proof of posting is in existence, the petitioner should have no difficulty in making use of the Track & Trace System of the post office to obtain evidence of receipt of the mail.

23.  I find on the balance of probabilities that the debtor was out of jurisdiction at the time service was attempted and that the writ sent by registered post was not received by the debtor.  I conclude that service of the writ was defective and the default judgment irregular.

24.  This alone is sufficient to annul the bankruptcy order, as the statutory demand to found the petition is based on the default judgment (Re Ng Chi Wo, HCB No. 2819 of 2003, Deputy Judge Poon, 29 July 2004, paragraphs 38-39).  I see no reason to exercise any discretion not to annul the bankruptcy order in these circumstances, as Miss Hui has urged me to do.  I do not think there is any foundation for the allegation that the debtor had deliberately concealed his address from the petitioner or that there was evasion of service of process.

Was there proper service of the statutory demand and petition

25.  Under rule 46 (2) of the Bankruptcy Rules, the petitioning 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.  What is reasonable must be judged objectively, in the light of information actually or constructively available to the creditor, at the time (Re Li Wai Man, HCB No. 211 of 1999 Yuen J, 1 November 1999, page 4).

26.  Here, the petitioner had no knowledge of any other address of the debtor apart from the Premises, when service of the statutory demand was attempted in 2003.

27.  Mr Lau submitted that the process server should have visited the registered office of Good Fame.  The debtor had deposed that he had told the secretarial company his address in the United Kingdom.  Had the process server made inquiries of the secretarial company at the registered office of Good Fame, he might have been informed by the secretarial company of the debtor’s address in the United Kingdom.

28.  It does not appear to me why the creditor might reasonably suppose that that could have happened.  As submitted by Miss Hui, the secretarial company had filed 3 annual returns for Good Fame for 2001 to 2003.  The addresses of the debtor and his wife on all these returns had remained unchanged in that the address of the Premises was stated.

29.  I do not think any other reasonable step could have been taken by the petitioner before an advertisement was placed in a newspaper.  I do not think the petitioner could be criticised for advertising a notice of the statutory demand in a local newspaper, as the petitioner had no information that the debtor was no longer residing in Hong Kong.  Nor do I think the order for substituted service was improperly obtained.

30.  The ground based on improper service of the statutory demand and petition fails.

Is there a defence on the merits

31.  It is not necessary to go into the merits of the defence in the District Court Action, having come to the view that the judgment was irregular and that the debtor was not served with the writ at all.

32.  As evidence was adduced on this and submissions were made, I propose to deal with this briefly.  I will only say that on two of the matters raised in defence by the debtor, I am inclined to think he has reasonably arguable grounds of defence.  The first is that he had delivered up vacant possession on the expiry of the lease.  On this, he has adduced some documentary evidence which may support his case, although I note that the petitioner has adduced documentary evidence which may show that vacant possession was not delivered until February 2002.  The other matter is that the amount of the judgment should be reduced by the amount of the deposit of HK$40,600.00, by virtue of clause 4(b) of the tenancy agreement, there being no allegation in the Amended Statement of Claim that the deposit was forfeited on any re-entry of possession.

Orders

33.  I annul the bankruptcy order and dismiss the petition.

34.  The Official Receiver’s fees and expenses of this bankruptcy and the costs of this application should be borne by the petitioner, including the Official Receiver’s expenses of gazetting and advertising the annulment order under rule 186 of the Bankruptcy Rules.  The Official Receiver’s costs of this application are assessed on a gross sum basis at HK$12,200.00.

35.  As for the debtor’s costs of this application, Miss Hui submitted that I should make no order as to costs because all the problems regarding service of process had been caused by the debtor.  I do not find that to be the case, and I certainly see no reason why I should depart from the rule that costs should follow the event in this instance.

36.  Mr Lau asked me to award costs to the debtor on an indemnity basis, he submitted that the petitioner’s continuing opposition after having received the debtor’s evidence was unreasonable.  I am afraid I do not take such a stern view of the matter.  I do not think the criticism of the other side that the debtor has produced very little documentary evidence to support his contention that he was residing out of the jurisdiction since July 2002 was wholly unjustified.  I see nothing to take this case out of the ordinary to depart from the rule that costs should be on a party and party basis.

37.  I therefore order the debtor’s costs of this application to be paid by the petitioner on the standard basis.

38.  I have assessed the costs of the debtor on a gross sum basis, based on the estimates provided to me by Mr Lau.  The solicitor’s costs I have taxed down to HK$60,000.00 and counsel’s fees for two appearances are taxed down to HK$100,000.00, making a total of HK$160,000.00.