Re To Cho Ping
Read the full judgment text of HCB 5744/2010 on BabelCite. This HCB judgment was delivered on 2 November 2011.
1. This is an application by Mdm To Cho Ping (“Mdm To”) to set aside the Bankruptcy Order made against her on 29 September 2010 in her absence. The Petition for her bankruptcy was brought by the Bank of China (Hong Kong) Limited, being the successor to the Kincheng Banking Corporation (“Bank”).
Cited by 4 cases · Cites 3 cases
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HCB5744/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO. 5744 OF 2010 ------------------------ Re : TO CHO PING, the Judgment Debtor Ex parte : BANK OF CHINA (HONG KONG) LIMTIED, the Judgment Creditor ------------------------- Before : Mr Recorder Jat SC in Court Date of Hearing : 15 September 2011 Date of Judgment : 2 November 2011 ----------------------- JUDGMENT ----------------------- 1.This is an application by Mdm To Cho Ping (“Mdm To”) to set aside the Bankruptcy Order made against her on 29 September 2010 in her absence. The Petition for her bankruptcy was brought by the Bank of China (Hong Kong) Limited, being the successor to the Kincheng Banking Corporation (“Bank”). 2.Two main issues arise for determination:
Background facts 3.The material background facts are largely not in dispute and are as follows. 4.Mdm To and her husband (“Husband”) were registered owners of a property at 5th Floor, Ngai Wong Commercial Building, No. 11 Mong Kok Road, Kowloon (“Property”). It was a unit in a commercial building and was the office of the Husband’s business. 5.The Property was purchased for $1.8 million with a mortgage from the Bank dated 15 January 1997 (“Mortgage”). The amount borrowed for the purchase of the Property was $900,000. Typically, the Mortgage was an “all monies” mortgage, and extended to cover all banking facilities granted by the Bank to the Husband’s business. 6.Mdm To was a housewife and had no independent income of her own. The Husband alone financed the mortgage repayments. 7.Unfortunately, the Husband ran into financial difficulties and owed the Bank substantial liabilities. In February 2004, the Bank commenced proceedings against the Husband and Mdm To pursuant to the Mortgage. No acknowledgment of service was filed by either of them. Judgment in default was obtained on 23 April 2004 (“Judgment”) and a writ of possession was issued on 29 May 2004. 8.The Property was sold by the Bank in September 2004. The net proceeds of just under $650,000 were insufficient to satisfy the judgment sum: the outstanding principal amount of the debt was over $3.6 million. 9.Some 5½ years later, on 26 March 2010, the Bank issued a Statutory Demand against Mdm To based on the Judgment debt. The Statutory Demand gave two addresses for Mdm To:
10.The 6/F Address was given by the Husband and Mdm To in the Mortgage. It was where the Husband’s office was located before the purchase of the Property, which was in the same building. After purchasing the Property, the Husband moved the office from the 6th Floor to the Property. 11.The Bank was not able to effect personal service of the Statutory Demand on Mdm To at either address. The Bank then advertised the Statutory Demand in local newspapers. 12.Mdm To did not respond to the Statutory Demand. 13.On 3 August 2010, the Bank presented a Bankruptcy Petition against Mdm To. Since the Bank could not serve the Petition on Mdm To personally, an order for substituted service was obtained. Mdm To made no appearance and was adjudged bankrupt on 29 September 2010 in her absence. Applicable legal principles 14.Counsel for the parties (Mr Wilfred Tsui for Mdm To and Miss Elizabeth Cheung for the Bank) have no disagreement on the applicable legal principle on the annulment of a bankruptcy order. They have very helpfully set out those principles in their Skeleton Submissions and it is sufficient for me to set them out in outline here. 15.Bankruptcy Ordinance, Cap. 6, s. 33(1)(a) provides that:
16.Rule 46 of the Bankruptcy Rules provides that:
17.Rule 49 of the Bankruptcy Rules relevantly provides that:
18.In Kam Hung Cheung v Bank of China (Hong Kong) Limited [2009] 3 HKLRD 597 at §11, the Court of Appeal adopted Carlye Chu J’s elucidation of the legal principles as follows:
19.In relation to the discretion element, the Court of Appeal held, at §37 of Kam Hung Cheung:
Mdm To’s reasons for non-appearance 20.Mdm To deposed that she was not aware of the Judgment, Statutory Demand, the Petition or the Bankruptcy Order until around end of October 2010. Her evidence, which is not disputed for the purposes of this application, is materially as follows. 21.As stated above, she was a housewife. She took no part in and had no involvement in the Husband’s business. 22.She emigrated to Canada in June 1990 to look after her children. She did not return to Hong Kong at all from June 1990 until the end of 1992. In early 1993, she returned to Hong Kong for about 3 months and then returned to Canada. Since then, she would return for a few months each year, usually during the winter season. Her travel records (provided by the Immigration Department) are largely consistent with her evidence. 23.Before 2004, when she returned to Hong Kong, she would reside at the matrimonial home. That property was sold in 2004. Thereafter, when she returned to Hong Kong, she stayed with a relative in Tuen Mun. 24.In about 2003, the Husband told Mdm To that his business was in difficulties and he was unable to pay his debts. However, he assured her that she need not worry, and that he would be able to deal with the problems himself. Mdm To knew nothing further about the Husband’s financial situation. 25.Mdm To says had no knowledge of the Bank’s mortgage action. The court documents were delivered to and posted on the Property but the Husband did not bring them to Mdm To’s attention. The Husband entered no appearance in those proceedings, hence judgment was entered in default against both the Husband and Mdm To. 26.The Husband was declared bankrupt in 2009, but Mdm To did not know the details. 27.Mdm To maintained various joint accounts with her children in Hong Kong. In October 2010, when she was in Hong Kong, she discovered that her joint account with one of her children with a bank had been frozen. The bank informed her that it was probably because she had been declared bankrupt. 28.Mdm To then made enquiries with the Official Receiver (“OR”). On 29 October 2010, she visited their office and was served with the Bankruptcy Order. She then instructed lawyers which led to the present application. 29.I am satisfied that Mdm To has provided an explanation of her default in appearance in both the mortgagee action and the Bankruptcy Petition. The Service Issue 30.The Bank had no knowledge that Mdm To had emigrated nor did it know of an address in Hong Kong where she could be found. It had two addresses of Mdm To on its records: the 6/F Address given in the Mortgage, and that of the Property. But given that the Husband’s business had moved from the 6/F Address to the Property in 1997, and the Property had been sold by the Bank itself in 2004, did the Bank do all that was reasonable for the purpose of bring the statutory demand to Mdm To’s attention? 31.The Bank’s evidence reveals that its process server (a staff of the law firm acting for the Bank at the time; not the solicitors on record for the Bank in these proceedings) visited both the 6/F Address and the Property in April 2010 for the purposes of serving the Statutory Demand on Mdm To. According to the process server’s affirmation filed for the purpose of the Bankruptcy Petition, the Property appeared to be unoccupied while an occupant of the 6/F Address told him that Mdm To was not working there. Enquiries made with occupants of neighbouring units and the management office indicated that Mdm To was not known to those persons. 32.The process server then sent two letters of appointment to Mdm To at both addresses, and both letters were returned and marked “addressee unknown”. The making of the Statutory Demand was then advertised in local newspapers. 33.Having deposed in his affirmation that the Bank did not know of any other address of Mdm To within the jurisdiction and not knowing whether she had left the jurisdiction, the process server made this assertion:
34.The affirmation concluded by stating that:
35.In my view, these statements are unsustainable. The Bank might not have known of any other address of Mdm To in Hong Kong, and might not have known whether she had left Hong Kong. But it must have known that she could not be located at the Property, which the Bank had sold in 2004. And the efforts of the process server indicated that she could not be located at the 6/F Address either. But there was no basis to suggest that Mdm To has “absconded” or was otherwise “evading” service. 36.I was informed at the hearing that such statements are routinely made in affidavits of service in bankruptcy proceedings, apparently to satisfy Rules 46 and 49. I am unable to accept that as a valid reason for this alleged practice. It appears to me that Rules 46 and 49 permit substituted service where the judgment debtor has absconded or is believed to be evading service; but they do not provide that those are the only circumstances for allowing substituted service. In my judgment, assertions of absconding and evasion of service should not be made unless there is concrete evidence to support them. If indeed there is such practice to recount the words of Rule 46(3) simply because the debtor cannot be located, such practice must stop. 37.However, in this case, I would not penalise the Bank for this error. If indeed the Bank had no other information about Mdm To’s whereabouts despite making reasonable efforts, it would have been likely that substituted service would have been allowed. I therefore turn to consider the critical issue which is whether the Bank had done what was reasonable, or reasonably practicable to locate Mdm To. 38.The Bank claims that it had no information about Mdm To other than the two addresses. That may be true, but is not the end of the matter. In this case the Bank has a source of information: the Husband. As stated above, the Husband was made bankrupt in 2009. The Bank knew about his bankruptcy, because it was a non-secured creditor for the balance of the Husband’s debt. As one would expect, the Bank must have filed a proof of debt. Indeed, Miss Cheung confirmed that that was the case. There is no suggestion or evidence that there would be difficulties in contacting the Husband. 39.In the circumstances, it seems to me that the Bank could and should have made enquiries with the Husband. If such enquiries had been made, the Bank could well have been told that Mdm To was residing in Canada (in which event the regrettable statements in the affirmation of service might not have been made). There is no reason to think that the Husband would not provide such information. In any event, even if the chances of obtaining that information are not particularly high, and such enquiry could be made without much difficulty, it would be reasonable to make it: see Re Pang Mei Lan May [2011] 3 HLRD 299 at 329B-H §§25-26 per Barma J. Obviously, if the Bank has failed to make any enquiry at all when it is reasonable for it to do so, it is no answer that the Husband might not have been forthcoming. 40.I am therefore of the view that the Bank has failed to show that it had taken reasonable steps to bring the Statutory Demand to Mdm To’s notice. The discretion issue 41.Mdm To’s case is that she has a meritorious defence to the Bank’s claim under the Mortgage. Mr Tsui characterised his client’s case as one of undue influence on the part of the Husband. Miss Cheung, on behalf of the Bank, argued strongly that no case of undue influence has been made out. 42.It seems to me that looking at the evidence in the round, Mdm To does have an arguable defence to the Bank’s claim, although it is questionable whether one can properly characterise it as undue influence. 43.Given that I have come to the view that Mdm To does have an arguable defence to the claim, I think I should refrain from going into detailed analysis of the legal and factual position. In brief, Mdm To’s central contention is that she had not been properly explained and did not understand that the Mortgage was an “all monies” mortgage, and that she could be personally liable for the debts of the Husband’s business exceeding the amount of the mortgage loan (which, it will be recalled, was for $900,000 only). If her story were accepted, it seems to me that she may well be able to set aside those documents in whole or in part. I note that this is not the case of a businessman who claimed not to understand a bank guarantee he had signed and by which his business secured banking facilities, as in the Kam Hung Cheung case. 44.The staff of the law firm handling the execution of the Mortgage naturally, as one would expect, dispute Mdm To’s claim. But after so many years they are only able to depose to what they claim to be their usual practice. I am not prepared to hold that Mdm To’s claim is incredible. And the only document in Chinese which she was asked to sign, a “consent letter” agreeing to dispense with independent legal advice, could be understood to refer to the amount of the mortgage loan only. In the circumstances, her claim that she had understood that her liability, if any, would not be limited to the amount of the mortgage loan, appears to me to be at least arguable. 45.Another factor that I have taken into account is the 5½‑year time lag between the sale of the Property in 2004 and the Statutory Demand which was only made in March 2010. By that time over $1.6 million in interest has accumulated. At the moment there is no evidence from the Bank to explain why it had taken it so long to issue the Statutory Demand. It seems to me at least arguable that Mdm To should not be held liable for the entirety of the interest, unless an acceptable explanation for that gap (I deliberately avoid using the word “delay” here) can be provided. 46.I am conscious that in Re Ip Pui Man Nina [2011] 3 HKLRD 299, Au J held that an overstatement of indebtedness in the statutory demand does not automatically entitle the debtor to have the demand set aside. But the present case is distinguishable in that here, there is an arguable defence as to liability on the principal debt and the question over the amount of interest is an additional factor that I took into account in the exercise of my discretion. I should emphasise that if the dispute on interest is the only arguable issue, it would not be sufficient by itself to justify annulling the Bankruptcy Order. Conclusion 47.For the reasons given above, I am satisfied that the Bankruptcy Order should be annulled. I order accordingly. 48.Counsel agreed that costs should follow the event, and I so order. 49.Pursuant to s. 33(5) of the Bankruptcy Ordinance, I also order that the annulment of the Bankruptcy Order be properly gazetted and advertised. Mdm To may recover the associated costs from the Bank as part of the costs of the proceedings. 50.I also make an order nisi that the Official Receiver shall have her costs in the amounts stated in paragraphs 7 and 8 of her Report dated 25 July 2011, such order to become final unless any party applies to vary it within 14 days of handing down of this judgment.
Ms Elizabeth Cheung, instructed by Messrs K.W. Ng & Co., for the Judgment Creditor Mr Wilfred Tsui, instructed by Messrs Katherine Y.W. Or & Co., for the Judgment Debtor The Official Receiver, Attendance excused |
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