Re Fung Chau Won t/a Chi Shing Co
Read the full judgment text of HCB 6785/2001 on BabelCite. This HCB judgment was delivered on 18 June 2004.
1. This is an application by the bankrupt Mr. Fung Chau Won ("Mr. Fung") to rescind the bankruptcy order made against him on 13 December 2001. The application is made pursuant to section 98 of the Bankruptcy Ordinance on the ground that the bankruptcy order made against Mr. Fung is irregular. It is submitted on behalf of Mr. Fung that he has no knowledge about the bankruptcy proceedings as at the material times he was not in Hong Kong.
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HCB 6785/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE IN BANKRUPTCY PROCEEDINGS NO. 6785 OF 2001 _________________________
_________________________ Coram: Before Master Ho in Court Date of Hearing: 16 December 2003 and 11 March 2004 Date of Handing Down Reasons for Decision: 18 June 2004 _______________ D E C I S I O N _______________ 1.This is an application by the bankrupt Mr. Fung Chau Won ("Mr. Fung") to rescind the bankruptcy order made against him on 13 December 2001. The application is made pursuant to section 98 of the Bankruptcy Ordinance on the ground that the bankruptcy order made against Mr. Fung is irregular. It is submitted on behalf of Mr. Fung that he has no knowledge about the bankruptcy proceedings as at the material times he was not in Hong Kong. Mr. Fung's Case 2.The background of Mr. Fung's case may be summarized as follows:-
The grounds for rescinding the bankruptcy order 3.The main ground relied on by Mr. Fung to rescind the bankruptcy order is that he had no knowledge about the service of the statutory demand and the petition. He stated that at the time of the service of the statutory demand and petition, he was outside the jurisdiction of Hong Kong. Relying on order 10, rule 1 of the High Court Rules (which requires the defendant to be within the jurisdiction of Hong Kong at the time of the service of the writ), Mr. Lam, Counsel for Mr. Fung, argued that the bankruptcy order against Mr. Fung was obtained on an irregular basis, and like any irregular judgment, should be set aside without going into the merits of Mr. Fung's case. 4.Further, Mr. Lam argued that the petitioner had not taken all reasonable efforts to serve the statutory demand and the petition on Mr. Fung. He argued that had the petitioner's solicitors conducted an updated business registration search against the business of Mr. Fung, the petitioner would have knowledge of the Golden Dragon address of Mr. Fung. Mr. Lam contended that although the Golden Dragon address stated in the business registration certificate is incorrectly described as Flat/Room 1, Block L, a document sent to that address would still reach Mr. Fung. 5.Mr. Lam further submitted that the bankruptcy order against Mr. Fung should be set aside because Mr. Fung has a substantial claim against KCRC. The attempts to serve the statutory demand and petition by the Petitioner's solicitors 6.According to the solicitors for the petitioner, they had taken all reasonable efforts to cause the statutory demand and the petition to be served on Mr. Fung. In the 1st affirmation of the process server, a Mr. Ling Lai Ming Midco of 19 July 2001 ("the process server"), he had summarized the various attempts he had made to serve the statutory demand on Mr. Fung. He states in his 1st affirmation as follows:-
7.In his 1st affirmation, the process server stated that the statutory demand was served on Mr. Fung on 29 May 2001 by advertising a notice of the statutory demand in the "Sing Tao Yat Po" and by sending a copy of the statutory demand by ordinary post to the Wing Yip Street address. The copy statutory demand sent to the Wing Yip Street address had not been returned by the post office. In the 2nd affirmation of the process server of 9 August 2001, he confirmed that neither the petitioner nor himself had any information or knowledge that the Mr. Fung had left Hong Kong. 8.As for the service of the petition, the process server had also summarized the various attempts he had made to serve the petition on Mr. Fung in his 3rd affirmation of 5 November 2001. The attempts are as follows:-
9.The process server also confirmed in his 4th affirmation of 22 November 2001 that neither the petitioner nor himself had any information or knowledge that Mr. Fung had left the jurisdiction. 10.On 30 November 2001, the Court granted an order for substituted service of the petition on Mr. Fung. Pursuant to the said order for substituted service, the petition was served by the petitioner's solicitors on Mr. Fung on 6 December 2001 by advertising a notice of the proceedings in the "Sing Tao Yat Po" and by sending a sealed copy of the petition to the Wing Yip Street address. The reports of the Official Receiver 11.According to the 2 reports filed by the Official Receiver, Mr. Fung has a total liability of $414,549.19. The Official Receiver took the view that even if Mr. Fung has accepted the balance of the compensation in the sum of $110,000, he still would not have sufficient money to pay off all his liabilities. The Official Receiver expressed doubts as to whether Mr. Fung would be successful in his compensation claim against the KCRC for $3 million. 12.Further, the Official Receiver pointed out that there has been delay in taking out the present application by Mr. Fung to rescind the bankruptcy order. The application was made on 24 October 2002, which was over 10 months from the date of the making of the bankruptcy order. 13.At the hearing of the present application, the attendance of the Official Receiver was dispensed with. The arguments 14.At the hearing, Mr. Lam argued that the legal principles in setting aside a default judgment under the High Court Rules should apply in setting aside a bankruptcy order. He referred the Court to a number of cases on setting aside a default judgment on the ground of irregular service under O.10, r.1 of the High Court Rules. These included Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648, Desirable International Fashion Ltd v Chiang Shi Chau [1997] 3 HKC 170, Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378, Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC. 15.Relying on the above cases and O.10, r.1 of the High Court Rules (which requires the defendant to be within the jurisdiction of Hong Kong at the time of service of the writ), Mr. Lam submitted that the bankruptcy order made against Mr. Fung should be set aside as at the time of the service of the statutory demand and petition, Mr. Fung was outside the jurisdiction of Hong Kong. Mr. Lam contended that the bankrupt Mr. Fung had no knowledge of the statutory demand and petition. 16.I do not agree with the submission of Mr. Lam above. In the first place, O.10, r.1 of the Rules of the High Court (which deals with the service of a writ) does not apply to bankruptcy proceedings at all, not to mention the legal principles established thereunder in relation to setting aside a default judgment based on irregular service. Under O.1, r.2 of the Rules of the High Court, it is expressly stated that the High Court Rules do not apply to bankruptcy proceedings. (See also the unreported judgment of Madam Justice Kwan in Re Lam Michael Alan Nigel, HCB 3929/2000, at paragraph 13 thereof). Indeed, under s. 99(1) of the Bankruptcy Ordinance, it states that the rules and practice of the High Court may apply to bankruptcy proceedings if those rules and practice are not inconsistent with the provisions of the Bankruptcy Ordinance. As for the service of the statutory demand and the petition are concerned, there are specific provisions in the Bankruptcy Rules governing how the statutory demand and the petition are to be served, namely rules 46 and 49 and rules 31 and 59 of the Bankruptcy Rules. In my view, O.10, r.1 of the High Court Rules does not apply to bankruptcy proceedings. 17.For the purpose of the present application, I shall set out below the material provisions relating to the service of the statutory demand and the petition namely:-
18.In my view, there is no requirement under Rules 46 and 49 of the Bankruptcy Rules that at the time of the service of the statutory demand, the debtor must be within the jurisdiction of Hong Kong. As pointed out by Madam Justice Yuen (as she then was) in the case of Re Damnerncharwanit [2000] 1 HKC at page 581:
19.In my judgment, what is required of the petitioner under R.46(2) of the Bankruptcy Rules is that, he 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. What is reasonable must be judged objectively, but in the light of the information actually or constructively available to the creditor at the time (see Re Li Wai Man ex. Parte Hang Tung Securities Limited [1999] HKCU 1310, per Yuen J (as she then was). 20.In the present case, the process server Mr. Ling had set out in his 1st affirmation (see paragraph 6 above) the various attempts he had made to effect service of the statutory demand on Mr. Fung. He stated that he had on 3 occasions and during the office hours visited the Wing Yip Street address which was the usual and last known address of Mr. Fung. Prior notice was also given to Mr. Fung before he made the 2nd visit. Further, he had made enquiries with the caretaker and the occupier of the premises at the Wing Yip Street address. He had even gone to the 4th floor of the same building to make enquiries. According to the process server and the petitioner, they had no information or knowledge that Mr. Fung had left Hong Kong. They believed that Mr. Fung was within the jurisdiction of Hong Kong as he is a permanent resident of Hong Kong and had carried on business in Hong Kong. In my view, the petitioner's solicitors had done all that is reasonable to bring the statutory demand to the attention of Mr. Fung. As attempts for personally service failed, I find that sending a copy of the statutory demand by ordinary post to the Wing Yip Street address and by advertising a notice of the statutory demand in the "Sing Tao Yat Po" satisfied the requirement of service under R. 46(2). I accept that at the material times, the petitioner had no actual or constructive information or knowledge that Mr. Fung was out of the jurisdiction of Hong Kong. I find that the statutory demand had been validly served on Mr. Fung. 21.As for the service of the petition is concerned, the process server had also set out in his 3rd affirmation (see paragraph 8 above) the various attempts he had made to effect service of the petition. I do not intend to repeat the details of those attempts but having considered the efforts made, I accept that personal service of the petition on Mr. Fung could not be effected as he could not be located at his usual and last known address. I also accept that the circumstances of the case justified an order for substituted service of the petition on Mr. Fung by advertising a notice of the petition in the "Sing Tao Yat Po" and by sending a sealed copy of the petition by ordinary post to the Wing Yip Street address. According to the petitioner and its solicitors, they had no information or knowledge (actual or constructive) that Mr. Fung was out of the jurisdiction at the material times. Of course, if there is evidence which shows that the petitioner or its solicitors had knowledge or information that Mr. Fung was not in Hong Kong at the time the application for substituted service order was made, the substituted service of the petition as above would be defective and not valid. But this is not the case here. In my view, since the substituted service order made by the court on 30 November 2001 had been carried out by the petitioner's solicitors, under R.59(3) of the Bankruptcy Rules, the petition shall be deemed to have been duly served on Mr. Fung. Indeed, and as pointed out by Madam Justice Kwan in Re Lam Michael Alan Nigel (supra) at page 9, paragraph 20 that:
22.I would add that since Mr. Fung was and is domiciled in Hong Kong (which is admitted by Mr. Lam, Counsel for Mr. Fung), S. 4(1)(b) of the Bankruptcy Ordinance, which requires the debtor to be personally present in Hong Kong on the day on which the petition is presented, does not apply. 23.At the hearing, Mr. Lam argued that the petitioner's solicitors should have conducted an updated business registration search before they attempted service of the statutory demand and the petition. He submitted that had this been done, the petitioner should have knowledge that Mr. Fung had moved his business to the Golden Centre address. 24.I do not agree with the submission of Mr. Lam above for the following reasons:-
25.In this application, Mr. Fung has referred the court to an English Court of Appeal case namely Re A Judgment Debtor (No. 1539 of 1936) [1936] 3 All ER 767 to support his argument that the debtor must be given notice of the statutory demand. In my view, this English case is quite different from the present case and has no direct application or relevance here. 26.In this English Court of Appeal case, the court had set aside a substituted service order because at the time the creditor's solicitors applied for a substituted service order for service of a bankruptcy notice, the solicitors had not informed the court that the debtor had left England. The court set aside the substituted service order as it took the view that the service of the bankruptcy notice by advertisement in the London Gazette and a local newspaper would not be effective notice to the debtor who was abroad and not in England. As for the present case is concerned, the issue in the English Court of Appeal case does not arise here as at the time of the service of the statutory demand and the petition by way of substituted service, there is no evidence that the petitioner and its solicitors had actual or constructive information or knowledge that Mr. Fung was out of Hong Kong. Further, the service of the statutory demand and the petition is now governed by Rules 31, 46, 49 and 59 of the Hong Kong Bankruptcy Rules. 27.The other argument advanced by Mr. Lam is that Mr. Fung has a substantive claim against the KCRC due to the resumption of his premises at the Wah Kai Centre address. He submitted that if Mr. Fung is successful on the claim, he would have sufficient money to discharge his debts and liabilities. I do not agree. It is quite clear from the letter of the Lands Department dated 3 September 2001 that the proposed claim of $3,480,000 from Mr. Fung had been rejected (see exhibit "FCW-4" in the 1st affirmation of Mr. Fung dated 15 October 2002). Further, the Lands Department had offered compensation to Mr. Fung in the total sum of $521,000 in full and final settlement of his claim. According to Mr. Fung, he had already accepted the provisional payment of $410,000 as stipulated in the said offer letter from the Lands Department. As such, I fail to see how Mr. Fung could have proceeded with his claim for $3,480,000. In my view, there is no substance in this argument. 28.Further, Mr. Fung had stated in his 1st affirmation that he could use the balance of his compensation i.e. $110,000 ($521,000 - $410,000) to discharge the debts of the petitioner. Again, I do not agree. As pointed out by the Official Receiver, Mr. Fung had admitted in his own statement of affairs dated 7 January 2002 that his total liabilities amounted to $493,288. In such circumstances, I also fail to see how the balance of $110,000 would be sufficient to discharge such liabilities. In this regard, I accept the submission of Mr. Maurellet, Counsel for the petitioner, that even at the date of the present application, Mr. Fung was insolvent. 29.At the hearing, Mr. Maurellet has further argued that the bankruptcy order should not be set aside because of the delay on the part of Mr. Fung in taking out the present application. Mr. Maurellet submitted that the bankruptcy order was made on 13 December 2001, but the present application was only taken out on 24 October 2002 which is over 10 months from the date of the making of the bankruptcy order. In the 1st report of the Official Receiver, he also took the view that there was delay in taking out the present application. He stated that the application should have been made within 21 days after the bankruptcy order was made. He referred the court to Butterworths Hong Kong Bankruptcy Law Handbook, 1st edition, at page 238 which deals with the time limit for applying to rescind a bankruptcy order under S.98(1) of the Bankruptcy Ordinance. It states that the court will likely to have regard to the 21 days time limit stipulated under S.98(2) of the Bankruptcy Ordinance. S.98(2) deals with the time limit for lodging an appeal against the decision of the court or the Registrar to the Court of Appeal. 30.On this issue of delay, I am prepared to accept the explanation given by Mr. Fung, namely that during those 10 months period, there was some misunderstanding between himself and the Official Receiver's Office over the $3 million payment that the Official Receiver required as security of his costs if Mr. Fung was to set aside the default judgment obtained by the petitioner against him in the District Court. However, I do not accept the further delay by Mr. Fung in prosecuting the present application. 31.It is to be noted that the present application first came before this court on 13 November 2002. At the first hearing, the court adjourned the matter to a date to be fixed for argument with 3 hours reserved. The court further gave directions for the parties to file and serve their respective affidavits. However, since the 1st hearing, no further steps had been taken by Mr. Fung to prosecute the present application. It is only at the instigation of the Official Receiver that the present application was re-listed for hearing on 16 December 2003 which is almost a year since the first court hearing. In my view, there has been inordinate delay on the part of Mr. Fung in prosecuting the present application. 32.I understand from the 2nd report of the Official Receiver that Mr. Fung had for sometime embarked on settlement negotiations with the petitioner. But if Mr. Fung is serious with his application, one would not expect him to engage in prolonged settlement negotiations but to proceed with the matter expeditiously. However, it seems that Mr. Fung had chosen to leave the matter in abeyance and only proceeded with it at the instigation of the Official Receiver. I doubt very much whether Mr. Fung would proceed with his application if the Official Receiver had not insisted that the application be re-listed for hearing. On this separate issue of delay, I agree with Mr. Maurellet that the court should not exercise its discretion to rescind the bankruptcy order. Conclusion 33.For the reasons given above, I do not see there is any merit in the application by Mr. Fung to rescind the bankruptcy order. In my judgment, both the statutory demand and the petition had been properly served on Mr. Fung. Further, I accept that at the time of the making of the bankruptcy order and of taking out the present application, Mr. Fung was insolvent. There is no valid ground to rescind the bankruptcy order made against him. The application is therefore dismissed with costs to the petitioner to be taxed if not agreed. There be a certificate for Counsel.
Representation: Mr. Maurellet, instructed by Messrs. Deacons, solicitors for the petitioner. Mr. Simon Lam, instructed by Messrs. Chan & Tsu, solicitors for the bankrupt. Official Receiver, excused from attendance. Remarks: Appeal by the bankrupt to Court of Appeal. Appeal allowed. Please refer to CACV209/2004. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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