Arvanitis v Citigroup Pty Ltd - [2010] FMCA 415

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ARVANITIS v CITIGROUP PTY LTD

[2010] FMCA 415

BANKRUPTCY – Applications to set aside sequestration order – serious issues as to service of petition – petition served only on bankrupt’s wife – insufficiency of service – bankruptcy annulled.

Federal Magistrates Court Rules 2001, r.606(1)
Bankruptcy Act 1966, ss.52, 306
Evidence Act 1995, s.140

Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 83 ALR 265
de Robillard v Carver [2007] FCAFC 73
Hudson Timber & Hardware Ltd v Mudge [2003] FMCA 298

Applicant:

GEORGE ARVANITIS

Respondent:

CITIGROUP PTY LTD

File Number:

BRG 16 of 2010

Judgment of:

Burchardt FM

Hearing dates:

12, 14 April & 20 May 2010

Date of Last Submission:

27 May 2010

Delivered at:

Melbourne

Delivered on:

2 June 2010

REPRESENTATION

Counsel for the Applicant:

Mr J. Bowers-Taylor

Solicitors for the Applicant:

JBT Lawyers

Counsel for the Respondent:

Mr M. Bromley

Solicitors for the Respondent:

Dibbs Barker

Counsel for the Trustee:

Mr De Lemos

Solicitors for the Trustee:

Carroll Fairon Solicitors

ORDERS

The Sequestration Order made by Registar Baldwin on 10 February 2010 be set aside.
The Bankruptcy of George Arvanitis be annulled.
The Respondent pay the costs of the Applicant to be taxed in default of agreement pursuant to the Federal Court Rules.
The Applicant pay the costs of the Trustee to be taxed in default of agreement pursuant to the Federal Court Rules.
The parties provide written submissions with respect to the status of the Creditors Petition within seven days of the date of this Order.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

BRG 16 of 2010

GEORGE ARVANITIS

Applicant

And

CITIGROUP PTY LTD

Respondent

REASONS FOR JUDGMENT

The matter before the Court is an application, filed on 3 March 2010. It seeks to review the making of a sequestration order by Registrar Baldwin. Originally, the notice of opposition filed cited two grounds: firstly, a failure of service; and, second, an assertion of solvency. The latter was because the applicant said he could pay his debts and, as a result of that, I adjourned the matter from 14 April to 20 May 2010 to give him the opportunity to do so. As it turned out, the applicant was not able to refinance, so solvency is no longer asserted.
The sole issue before the Court is the question of service. The parties agree that the starting point in relation to service is a requirement for service of this application, the original proceedings, by hand pursuant to r.6.06(1) of this Federal Magistrates Court Rules 2001. I will read that out. Under the heading “When is Service by Hand Required”, it says:
“Service by hand is required for an application starting a proceeding, or a subpoena requiring attendance of a person.”
The manner of such service is set out in r.6.07 and reads:
“A person serving a document by hand on an individual must give a copy of the document to the person to be served. However, if the person to be served does not take the copy of the document, the person serving it may put it down in the presence of the person to be served and tell the person what it is.”
There’s another subrule which is not relevant. Strict proof of service is required in bankruptcy. In Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW), a decision of Gummow J in the Federal Court, as his Honour then was, cited (1988) 83 ALR 265, the headnote reads as follows:
“Held, dismissing the application, strict proof of observance of the requirements for service of bankruptcy notices and bankruptcy petitions is necessary.”
At page 275, at lines 20 - 48, the Court said as follows:
In Re Long; ex parte Fraser Confirming Proprietary Limited 12 SASR 130 Walters J reviewed the authorities which indicate a necessity for strictness of proof in observance of the requirements for service of bankruptcy notices and bankruptcy petitions. The applicant properly placed much reliance upon this decision. It was he who drew it to the attention of the court. The dispute before Walters J arose as an application to set aside for want of due service a bankruptcy notice on which a petition had been based. Although an affidavit of service by a process server deposed to personal service of a bankruptcy notice on the debtor, Walters J found, after hearing evidence, that the notice had not been served personally on the debtor. Rather, the notice had been handed to the wife of the debtor at his house, and the notice had not been brought to his attention until some eight or ten days had elapsed.
Walters J held (i) that the failure of the petitioner to prove personal service of the bankruptcy notice was not a formal defect or irregularity which might be corrected by bringing it within the umbrella of s.306 of the Bankruptcy Act; and (ii), that the want of personal service of the bankruptcy notice rendered defective the petition founded on it, despite the debtor’s subsequently acquired knowledge of the existence of the notice and even though there was no proof of substantial injustice having been done to the debtor by the defect in service. In the result, Walters J ordered that the bankruptcy notice be set aside, and it followed that the petition was dismissed.
Whilst not necessarily being of the view that s.306 can never apply in such a case, in any circumstances, I respectfully agree with what was said by his Honour as to the importance of proper proof in these cases and as to the salutary consequences for creditors of failure to comply with the rules. Similar views are expressed by Fisher J in Re Williams; ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558.”
Against that introductory background, I turn to the evidence. The affidavit of service of the creditor’s petition was sworn on 21 January 2010 by Giuseppe Gulle. I will read paragraphs 1 and 2 of that affidavit:
On 20 January 2010, at 5 pm, I served George Arvanitis with –and he says the petition and the various affidavits in support – by delivering the documents to him personally at 84 Tinning Street, Brunswick, Victoria, 3506. I identified the person I served as the debtor, George Arvanitis, by asking him, “Is your name George Arvanitis?” and he responding, “Yes.”
From that I would note, first, this was said to have taken place at 5 pm or thereabouts; second, that Mr Arvanitis is said to have acknowledged service. And I further note that Mr Gulle swore an affidavit of service of the bankruptcy notice on 16 November 2009, at which exactly this same exchange with Mr Arvanitis is asserted.
There are three other affidavits about service. On 3 March 2010, the applicant filed an affidavit himself. Paragraphs 7 to 12 read as follows:
7. I was not personally served with a creditor’s petition, filed in this proceeding, whether at 5.00 pm on 20 January 2010 or at all.
8. 20 January is my birthday. I was not at or near my home on 20 January 2010 at approximately 5 pm.
9. I recall my movements on 20 January 2010. I had been to a building site at 355 Peppin Road, Peppin Point, near Bonnie Doon, which is approximately 180 kilometres from Melbourne. I had been there quoting a plastering job for a builder and I was there until approximately 2 pm. The drive to Melbourne takes approximately two hours.
10. I did not travel straight to my home. From approximately 4.00 pm to 6.00 pm I was at another building site in Ascot Vale situated at 127 to 129 Union Road, Ascot Vale which is a development of nine apartments and a shop. I was there with a Mr Harry Amanatidis who is involved in the development as a purchaser of two of the units and the shop. I attend that site on an almost daily basis to inspect the progress of the works and to secure the site. Harry also attended quite frequently.
11. I did not return to my home until approximately 6.30 pm. I then celebrated my birthday with my family. At approximately 10.30 pm on 20 January 2010 my wife, Maria Arvanitis, handed me an envelope containing a bundle of documents which I now understand to be the creditor’s petition in this matter. I briefly looked at but did not understand the effect of the documents. I did not know there was a hearing of the creditor’s petition on 10 February 2010. The following day I delivered the documents to the office of my business advisor, Steve Marks, who was overseas at the time, and then I forgot about them.
12. At the time of handing the envelope to me, my wife said to me, and I believe, that a process server had attended at 5 pm on that day and she had explained to him that I was not there and would not be there for another hour or so. She said she had met the process server on a prior occasion. She said that the process server told her that he would leave the documents there with her to give to me, as he knew that I lived there. She also said that he had asked her not to say anything and said, “I shouldn’t be giving you these.” My wife will swear an affidavit to this effect.”
The wife did, indeed, file an affidavit to that effect, and on the same day, 3 March 2010. Paragraphs 2 and 3 read as follows:
I was at home at 84 Tinning Street, Brunswick, at approximately

5 pm on 20 January 2010. A process server whom I had met on a prior occasion came to our home with an envelope. He asked if my husband was home. I explained to him that George was not home, and would not be home for another hour or so. The process server said he would leave the envelope there with me to give to my husband as he knew that George lived there. He asked me not to say anything and said words to the effect of,

“I shouldn’t be giving you these.”
20 January is my husband’s birthday. George arrived home at approximately 6.30 pm. I did not immediately give him the envelope as we were celebrating his birthday. I handed the envelope to him at approximately 10.30 pm.
Finally, the affidavit of Mr Amanatidis was filed also on 3 March 2010. Paragraphs 2 and 3 read as follows:
I know George Arvanitis through my involvement in the development of a building site at 127-129 Union Road, Ascot Vale. I am involved in the redevelopment having purchased two of the units and one shop. I often attend the site, and George attends the site on most days to meet with trades people and to secure the site.
I was with George Arvanitis at the site between the hours of approximately 4.00 pm and 6.00 pm on 20 January 2010. I was there to meet with tradespeople including painters, electricians, plumbers, carpenters, locksmiths and the like, regarding the progress of the works. (the development is behind schedule). I also recall it because George told me it was his birthday and he invited me to have a drink with him to celebrate it, and I had also refreshed my memory from my diary.
When the matter was before the Court on 14 April, I asked whether the deponents would be cross-examined. There was some to’ing and fro’ing but it is clear that, in the ultimate, neither party has required the witness or witnesses of the other party for cross-examination, or produced their own witnesses to the Court. In my view, the conduct of both parties, in these circumstances, is extraordinary and unsatisfactory. Both proceeded on the materials as they stand, despite a clear conflict of evidence on an essential evidentiary point.
The applicant’s case was that the burden of proving service lies on the respondent. The respondent has failed to do so, it was submitted, despite the weaknesses in its case being brought to its attention. Reference was made to the case of de Robillard v Carver [2007] FCAFC 73. It was submitted that that was authority for the proposition that the creditor’s petition would be set aside if the affidavit was false, further authority for that being Hudson Timber & Hardware Ltd v Mudge [2003] FMCA 298 at [9].
The respondent’s case was that I should accept the affidavit of the process server. It was also submitted that the court was not deprived of jurisdiction in any event; a submission I in fact accept. It was then put that even if the process server was mistaken, the wife got the documents and gave them to the husband that night; and the husband who is, of course, the applicant in this proceeding, did nothing about them. If necessary, the respondent seeks exemption from compliance with the rules.
Moving to my own consideration of the matter, I think that strict proof of service is necessary and I cite the authority of Ditfort for that. It is for the respondent to satisfy the court of service. In my view, this is implicit in the terms of s.52 of the Bankruptcy Act 1966. It is implicit in the fact that any applicant always has to prove their case in inter partes litigation. Here, there are four affidavits about service. One asserts service directly to the applicant, Mr Arvanitis, and that is the affidavit of Mr Gulle. Three others deny service in terms that are certainly credible on their face. If it were necessary to decide on the papers, I would prefer the applicant’s evidence.
On balance, it seems to me more likely that the process server is in error. He presumably serves documents every day and might be perhaps more likely to take shortcuts. The other three would, on the other hand, have to be knowingly perjuring themselves; and in that regard I pay regard to s.140 of the Evidence Act 1995. But on balance, I think the better view is that it is not in fact necessary to decide this point. The creditor has to prove service. In the face of three affidavits saying there has been no service, and no cross-examination by either party, I can simply not be satisfied that it is more probable than otherwise that the applicant was served.
This then leads to whether there should be exemption, either under s.306 of the Bankruptcy Act or under the court’s rules. I’ll say, shortly, I am not prepared to grant such exemption. There must be a real risk that the affidavit sworn by the process server is untrue. A sequestration order is a serious matter, and Ditfort and other authority makes it plain that service on the wife is not enough. It gives rise to exactly the sort of difficulties that this case has produced. So, in my opinion, the sequestration order cannot be maintained.
The next question is whether the bankruptcy should be annulled or set aside. In my view, this has been a short administration but the position adopted by the trustee has been entirely proper. If one looks to the correspondence exhibited to the second affidavit of Mr Bowes-Taylor, and if I look at submissions received from the trustee, it is clear that the trustee’s conduct has been entirely appropriate. Here, on any view, the applicant failed to pay his debt. He failed to take any steps after the bankruptcy notice was served upon him. He failed to pay any attention to the creditor’s petition, although I note the circumstances in which he got it. I will order the bankruptcy be annulled.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate: Ms B. Evans

Date: 2 June 2010