Ciftci, M. v Colquhoun, A.J.G

Re: MICHAEL CIFTCI
Ex parte: MICHAEL CIFTCI v ALAN JOHN GRANT COLQUHOUN AND BERYL JUNE SMITH
No. NB3197 of 1993
FED No. 756/94
Number of pages - 7
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
EINFELD J

CATCHWORDS

Bankruptcy - application for annulment - personal service of bankruptcy notice - documents left in presence of debtor - whether notice sufficiently identified to debtor - discretion to annul

Re Ditfort ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347
McDonald v Allen unreported Federal Court (Gray J) 23 September 1992
Re Ram and Singh; ex parte Continental Seagram Pty Limited unreported Federal Court (Einfeld J) 23 September 1988
Howarth v Mortgage Acceptance Nominees Limited unreported Federal Court (Einfeld J) 6 August 1993
Pino v Prosser (1967) VR 835
Re Long ex parte Fraser Confirming Pty Limited (1975) 12 SASR 130
Thompson v Pheney (1832) 1 Dowling's Practice Cases 441

HEARING

SYDNEY, 19 July 1994
#DATE 19:7:1994

Counsel and solicitor for the P. Newall instructed by
applicant E. Hussein

Counsel and solicitor for the J Robson instructed by
respondents Gillis Delaney Brown

Solicitors for the Trustee Sally Nash and Co

ORDER

The Court orders that:
1. the bankruptcy be annulled
2. the creditors pay the debtor's costs of the application and the

trustee's costs of $1,250

3. the debtor to pay the creditors $1,250 by way of indemnity for the

trustee's costs

Note: Settlement and entry of orders are dealt with in the accordance with Order 36 of the Federal Court Rules.

JUDGE1

EINFELD J The bankrupt, Michael Ciftci, applies for the annulment of his bankruptcy on the grounds that the sequestration order should not have been made. The application is based upon a number of grounds, eight in all, of which one is that the bankruptcy notice was not served on him personally as required by rule 15. The parties have agreed that this ground of the application should be determined first. The bankruptcy notice and the sequestration order were founded on a judgment given against the bankrupt in the District Court in 1991.

As the applicant for the relief, the bankrupt bears the onus of proving his case. In other words, he must establish on the balance of probabilities that the bankruptcy notice was not served. He relies upon two affidavits. One is the affidavit of service of James Norman Hendry, a licensed commercial sub-agent, dated 21 December 1992, and the other is his own affidavit of 20 June 1994.
Hendry's evidence is that on Sunday, 20 December 1992, at 12 minutes past 6 in the morning he attended at private domestic premises at 68 Station Street, Newtown. This was the address given in the bankruptcy notice itself and it was also the address given for Ciftci in the original statement of claim in the District Court. Hendry says that when he arrived at the premises he spoke with a female who told him that he was the bankrupt's wife. In response to his question as to whether the bankrupt was at home, she answered, quite helpfully I thought: "No, he's at his girlfriend's". He then saw a male looking around the door in the hallway and asked him whether he was the bankrupt, Michael Ciftci, to which the answer was given, "Yes, but you have to put the documents in my hand, arsehole". Hendry says that he replied, "Wrong, sir. You have identified yourself to me as being the debtor, I am therefore leaving the documents in your presence". He says that he subsequently "served" the document by "leaving it in his presence".
In his oral evidence Hendry identified Ciftci in court and said that he had seen him on a number of occasions when at his home to serve process. It seems hardly likely that he could have been there prior to 20 December 1992 at 6.12 am because he asked Ciftci whether he was the person referred to. If he had recognised him, he would not have had to ask the question. Moreover, the affidavit was not expanded on in oral evidence as to what was meant by "leaving the documents in his presence" or indeed what "the documents" were. I am left to imagine what this phrase was intended to convey.
There is annexed to the affidavit a copy of the bankruptcy notice which is marked "A". A label attached to the document says that "This is the annexure marked "A" referred to in the affidavit of James Norman Hendry sworn at Sydney this 21st day of December 1992". It is signed by a Justice of the Peace but the Justice of the Peace did not notice that there is no annexure "A" referred to in the affidavit. What the affidavit says is that Ciftci was served with "the bankruptcy notice herein by delivering a sealed copy thereof signed and stamped by the Deputy Registrar in Bankruptcy". As both parties to the conversation, Ciftci and Hendry, according to Hendry's affidavit, referred to documents in the plural, I am again left to wonder what other documents were served and whether the bankruptcy notice as annexed to the affidavit, which is as it happens an original, was in fact one of the documents served.
In his affidavit Ciftci says that nothing like the events referred to by Hendry in his affidavit ever happened. He says that at 6.12 am on 20 December 1992 he was not residing nor was he present at 68 Station Street, Newtown. He denies having a conversation with any process server at that time and denies that a process server left documents in his presence. Ciftci's evidence was that he and his wife had separated at the time of the alleged service, that she was but he was not living at Station Street, Newtown then, and that he did not live at that address thereafter.
Yet Ciftci admitted in Court to twice signing in his own handwriting, on 5 February 1993, a Development Application to the Marrickville Municipal Council under the Environmental Planning and Assessment Act 1979 in respect of the proposed use of 12 Addison Road, Marrickville to which he said he had moved after his separation and where he was also carrying on a business. This signed application contained his name, the address 68 Station Street, Newtown, and the telephone number of those premises, all of them as his. I listened carefully to his explanation for that anomaly and must say I did not understand it then and do not understand it now.
There was also produced in evidence a number of extracts from the computer of the Roads and Traffic Authority of New South Wales (RTA). One of them is called "DRIVES - Customer (Person) Summary Details" and clearly applies to Ciftci. It appears to be an extract from the computer in respect of two vehicles and its most important feature for present purposes is that Ciftci gives his residential address as 68 Station Street, Newtown and a mailing address of PO Box 400, Petersham. This particular document is dated 12 July 1994 but that is presumably the date on which it was extracted from the computer and it is not immediately clear at what date the information contained in it was given.
Some other material was produced from the records of the RTA. One relates to a Datsun car or truck registered ELU 183, the registration of which expires on 9 November 1994. It seems to state that the vehicle was acquired on 9 August 1993 and was transferred to Ciftci on 13 December 1993. In any case the address given for Ciftci is 68 Station Street, Newtown. Other records relating to the Datsun seem to show that the vehicle was transferred from another woman who had earlier owned the vehicle on 13 December 1993 to Ciftci at the same Newtown address.
Records were also supplied by the RTA in respect of a Leyland mini truck the registration on which seems to have expired on 22 August 1993, apparently before he purchased it because it seems to have been transferred to Ciftci on 27 September 1993. Again the address given in respect of this vehicle was 68 Station Street, Newtown.
Some RTA records for someone named Suzi Ciftci, who is presumably the wife or former wife of the bankrupt, have also been produced showing her address as 68 Station Street, Newtown, both in respect of her licence and the registration of a Mitsubishi Sigma.
In cross examination Ciftci sought to give some form of explanation for the obvious conflict between his affidavit and his oral evidence on the one hand and his address as given in these documents, but the explanation was completely unsatisfactory and I do not accept it for a moment. Hence in relation to the first dispute, namely as to whether Ciftci was at the Newtown premises on the day in question, I have Hendry's unsatisfactory affidavit and Ciftci's unreliable evidence. As the bankrupt carries the onus of proof, this dispute must be resolved against him and in favour of the creditor.
Whatever Hendry meant when he talked of leaving those documents in Ciftci's "presence", and assuming that "the documents" including the bankruptcy notice, the second matter raised is whether in fact they were served personally as required by rule 15. There is no dispute that they were not served personally in the sense that they were placed in his hands. Accordingly the question is raised whether rule 15 was, or ought to be held to be, satisfied by what did take place. In Re Ditfort ex parte Deputy Commissioner of Taxation, (1988) 19 FCR 347 at 358-9, Justice Gummow reviewed the cases concerning the requirements of rule 15 and the failure of creditors to comply with them. His Honour referred to a decision in South Australia in Re Long ex parte Fraser Confirming Pty Limited (1975) 12 SASR 130, where the strictness of proof in the observance of the requirements for the service of bankruptcy notices and petitions was considered. In that case the bankruptcy notice was served on the debtor's wife at his house but it did not come to his attention for some days afterwards. It was held that the failure of the creditor to prove personal service of the bankruptcy notice was not a formal defect or irregularity which might be cured by the application of section 306 of the Bankruptcy Act, and that the lack of personal service rendered defective the petition founded upon it. This result was said to flow despite the fact that the debtor subsequently acquired knowledge of the existence of the bankruptcy notice, and even though no substantial injustice had been done by the failure to serve personally. I made a similar finding in Re Ram and Singh; ex parte Continental Seagram Pty Limited, unreported 23 September 1988.
In Ditfort Justice Gummow pronounced himself as not necessarily being of the view that section 306 can never apply in such a case in any circumstances, but he did agree with what was said in Long as to the importance of proper proof and what his Honour called "the salutary consequences for creditors of failure to comply with the rules". At 359 his Honour also considered some other cases including the Victorian case of Pino v Prosser (1967) VR 835 that might be in some conflict with Long, but pronounced himself as preferring Long to the Victorian judgment. Most importantly, however, Justice Gummow went on to consider the sufficiency of service other than precisely personal service in the sense of putting the document in the actual hands of the person being served. His Honour quoted Thompson v Pheney (1832) 1 Dowling's Practice Cases 441, heard by the Court of King's Bench, in which the venerable Patterson J said at 443:

I do not mean to say, that it is necessary to leave the process in the actual corporal possession of the defendant; for, whether the party touches him or puts it into his hand, is immaterial for the purpose of personal service. Personal service may be, where you see a person and bring the process to his notice..... I am quite of opinion, that in this case there are not sufficient facts to warrant any man in making an affidavit of personal service. If the deponent had informed the defendant of the nature of the process, and thrown it down, that would do.

Justice Gummow went on in Ditfort at 360:

I accept the submission by the respondent to the present application that there may be delivery personally to the debtor of process within the meaning of rule 15 of the Bankruptcy Rules, even though the process has not been left in what Patterson J described as the "actual corporal possession of the defendant". If the debtor were refusing to take such actual corporal possession of the process, but the process server informed the debtor of the nature of the process and left it before or near the debtor so that the debtor had unimpeded and immediate access to the documents, that, in my view, should, in general, be sufficient to comply with 15.

In McDonald v Allen, unreported 23 September 1992, Justice Gray in this Court said at 6:

As to what was said, which is really crucial because in order to establish good service the petitioning creditor must establish that the debtor understood that an attempt was being made to serve a bankruptcy notice, I accept the evidence of Mr McDonald and Mr Armstrong. That is to say that Mr Allen did not say the words "bankruptcy notice" but said the word "something". I accept this because I am persuaded of the truth of Mr Armstrong's observation that if the word "bankruptcy" had been used, he, as an employee of Mr McDonald would have been most concerned. I accept that Mr Allen did touch Mr McDonald on the chest with the document and did not throw it at his retreating figure as Mr Armstrong said.

His Honour went on at 7:

Mr McDonald then quickly lost himself in the crowd. It may well be that there was a shout of "That's good service" from Mr Allen. ..... In other words, it may be that, having touched Mr McDonald on the chest with the document, Mr Allen believed that he had in some way affected good service.

His Honour referred to the decision in Ditfort and rejected that belief.
Thus the view of two other judges of the Court is that if documents are to be served personally but not placed in the hands of the intended recipient, it is necessary for evidence to be given that the documents were left proximate to the person concerned and that the nature of the documents or their substantive content was explained. In view of the fact that this law appears to have been existing in common law countries exercising bankruptcy jurisdiction for more than 160 years since Thompson was reported, and that two judges of this Court have in recent years applied and adopted the views expressed so long ago, it is not appropriate that I should attempt to state the law in some different way. There is no evidence that either of those two requirements were complied with here. It is not known where in relation to Ciftci "the documents" were placed, despite the fact that Hendry was, unusually, available for cross-examination by the creditor for whom he was acting as agent on the day in question. Nor is it disputed that Hendry did not make any effort to explain to Ciftci that one of the documents was a bankruptcy notice, if it was the fact, still less inform Ciftci or the Court what other documents may have been served at the time.
It is true that in many ways such a finding brings about a very unjust result, but the law relating to bankruptcy has always been susceptible not only to a degree of technicality, but to a high degree of strict application. This is because the effects of bankruptcy are so great and widespread that even persons who would not normally be entitled to the exercise of a discretion in their favour, are entitled to strict protection from any failure to comply with the regulatory requirements. It is my duty to act in accordance with the law as presently understood, and this would not be the first case in which an apparently unjust result flowed from the application of the appropriate rules.
For that reason, I uphold the submission that the bankruptcy notice has not been shown to have been served personally on the debtor as required by rule 15.

(AFTER DISCUSSION)
22. The question of whether the discretion should now be exercised to annul the sequestration order is not a simple one. The merits of the matter looked at in terms of abstract justice would suggest that the annulment should not be granted but I must take into account that the bankrupt has moved to set aside the judgment obtained in the District Court on 2 January 1992 on which the bankruptcy notice was based. This means that even if the proceedings were in some way able to be left on foot by deeming the notice to have been properly served and extending the time for compliance with the bankruptcy notice, it is unlikely that a sequestration order would now be granted until the attempt to set aside the judgment of the District Court has been dealt with. In any event, a new petition would almost certainly be required as the original petition would now contain an act of bankruptcy which had not been committed and in any event would probably have expired.

I have some doubts about whether it is possible to leave the present bankruptcy notice in place. At best, in view of the requirements of rule 15 to which I have referred and the views of Justices Gummow and Gray which I have followed, it seems that it would have to be re-served and its term extended after expiry. I have recently written about the power of the Court to extend the time for compliance with a bankruptcy notice after time for compliance had expired: Howarth v Mortgage Acceptance Nominees Limited, unreported, 6 August 1993. But that case and the other cases referred to in that judgment would indicate that an application to extend time here might fail on discretionary considerations even if it could succeed in law. Hence, so far as I can see, there seems nothing to be gained and a considerable amount of legal doubt attending any attempt to deny annulment.
No doubt the completion of the proceedings in the District Court will considerably help to clarify this whole issue and I do not think that supervening bankruptcy proceedings would, at the end of the day, aid the resolution of this long unpaid debt by attempting a manipulation of the current proceedings so as to keep them on foot however doubtfully. In those circumstances I annul the bankruptcy.
The debtor asks for an order that the creditors pay his costs of the proceedings. There is an application by the trustee for costs in the sum of $1250 with which I must also deal. In order to have the application for sequestration dealt with, it was necessary for the creditors to apply for substituted service of the petition. This application was filed on 8 September and the order was made on 9 November 1993. Service in accordance with the method laid down was effected on 17 November 1993 when a sealed copy of the court's order for substituted service and creditor's petition were sent by pre-paid ordinary post, together with the appropriate affidavits, to the debtor's former or actual address at 68 Station Street, Newtown.
The sequestration order itself was made on 10 December 1993 and the debtor has given evidence that he did not know of the fact of the bankruptcy proceedings at all until he was contacted by the trustee after the sequestration order was made. However, the application for annulment was not filed until 25 May 1994. The file seems to indicate that the debtor certainly knew about the bankruptcy a considerable time before the filing of that application. He certainly knew of it in April when he was served with a summons under section 81 of the Bankruptcy Act. In the circumstances, it seems that the trustee's costs were therefore somewhat more than needlessly incurred.
It is not unreasonable in the circumstances that the debtor should obtain an order for costs of the application for annulment and that the creditors should pay the trustee's costs, but I think that the debtor should indemnify the creditors in respect of those costs, which were largely, if not entirely, caused by his own actions. Therefore, I make an order that the creditors pay the debtor's costs of the application for annulment and the trustee's costs in the sum of $1250, but that the debtor pay to the creditors that sum of $1250 in full indemnity for the trustee's costs.

[1994] FCA 756

19 JULY 1994