Deputy Commissioner of Taxation v Mahaffy - [2011] FMCA 416

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v MAHAFFY

[2011] FMCA 416

BANKRUPTCY – Service of bankruptcy notice – whether ‘personally delivered’ – extended application under Re Ditfort – notice left with debtor’s mother at front door – service not effected – creditor’s petition dismissed.

Bankruptcy Act 1966 (Cth), ss.306, 309(2)
Bankruptcy Regulations 1996 (Cth), reg.16.01(1)(d)
Federal Court Rules (Cth), O.7, r.2(2)
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)

de Robillard v Carver (2007) 159 FCR 38
Ditfort v Temby (1990) 26 FCR 72
Lawindi, in the matter of Elkateb v Elkateb [2001] FCA 1527, (2001) 187 ALR 479
Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347
Re Hudson; Ex parte G E Crane and Sons Ltd (1990) 25 FCR 318
Wong v Robinson [1995] FCA 805

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

PETER J MAHAFFY

File Number:

SYG 2709 of 2010

Judgment of:

Smith FM

Hearing date:

27 May 2011

Delivered at:

Sydney

Delivered on:

27 May 2011

REPRESENTATION

Counsel for the Applicant:

Mr S Golledge

Solicitors for the Applicant:

Australian Taxation Office

Counsel for the Respondent:

Respondent in person

ORDERS

The petition is dismissed.
The applicant must pay the costs of the respondent, including reserved costs, as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2709 of 2010

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

PETER J MAHAFFY

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

The Deputy Commissioner of Taxation moves on a creditor’s petition filed on 16 December 2010, which asserts a debt of $379,375.63, being the balance owing under a District Court judgment obtained against Mr Mahaffy on 11 December 2009.
The petition relies on an act of bankruptcy which is described in paragraph 4 of the petition:
4.The following act of bankruptcy was committed by the respondent debtor within 6 months before presentation of this petition:
The respondent debtor failed to comply on or before 7 October 2010 with the requirements of a bankruptcy notice served on him on 16 September 2010 or to satisfy the Court that he had a counter‑claim, set‑off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter‑claim, set‑off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
To prove the act of bankruptcy, the Deputy Commissioner read an affidavit by a process server, Daniel John Cini, sworn 15 November 2010. It attaches bankruptcy notice NN3722 of 6 September 2010, which asserts indebtedness under the same District Court judgment. Mr Cini’s affidavit deposes in paragraphs 1 and 2:
1.On the 16 day of SEPTEMBER 2010 at 7.35 o’clock in the BEFORE noon I served Peter J Mahaffy with a true copy of the Bankruptcy Notice signed and dated on the 6th day of September 2010 by the Official Receiver to which was annexed details of the interest claimed in the Bankruptcy Notice together with a true copy of the Judgment obtained in the District Court of New South Wales at Sydney on 11^th December 2009 by delivering them to Peter J Mahaffy personally at: 4 Nelson Street, Wee Waa NSW 2388.
2.That I identified the person served by me as the said Peter J Mahaffy by reason of the following events and statements made at the time of service:
I approached the front door of the property at 4 Nelson Street, Wee Waa and saw a middle aged man and an elderly woman through the window they were known to me as the defendant and his mother, Joy. I knocked on the door for 5 minutes before the female came to speak with me.
I said:“Good morning, Is Peter J Mahaffy available?”
Joy replied: “He is here, but he knows who you are and he does not feel he has to speak with you”
I then said:“I am leaving this paper work here for him at your feet in full view I have seen that he is here and you have confirmed that he is here and refuses to speak with me”
Joy replied: “You can’t just do that”
I then turned and walked away. I sighted a Toyota Utility with the registration plates XXX ### in the driveway.
Mr Cini has sworn a second affidavit on 12 April 2011, in which he explains his first affidavit. In paragraph 2, he says:
2.In respect of paragraph 2 of my affidavit, I say that I did not intend to convey that I recognised the respondent and his mother at the time I saw them through the window at 4 Nelson Street, Wee Waa NSW. I meant to say that I knew of them through the course of my employment with Lloyd R C & Associates as David Mahaffy has previously engaged the services of Lloyd R C & Associates to serve Jeffrey Mahaffy.
Mr Mahaffy has filed a notice of opposition to the petition, and raises a number of issues, including whether he was served with the bankruptcy notice in the manner deposed to by Mr Cini or at all. He denies being in his mother’s house at 4 Nelson Street, Wee Waa at any relevant time, and claims that it is impossible to make any observation through her window as claimed by Mr Cini. Mr Mahaffy has filed a number of affidavits, taking issue with everything Mr Cini says in his affidavits. Mr Cini and the deponents of Mr Mahaffy’s affidavits are available for cross‑examination. Mr Mahaffy is representing himself.
I felt it appropriate, in circumstances where it became unlikely that a full hearing of the contested issues of fact could be completed within the day set aside for the hearing, to invite the Deputy Commissioner to consent to my addressing, in effect, a ‘no case to answer’ contention by Mr Mahaffy in relation to the act of bankruptcy relied upon in the petition, on the basis that the Deputy Commissioner’s evidence about service of the bankruptcy notice could not rise any higher than the affidavits of Mr Cini set out above. Counsel for the Deputy Commissioner accepted that it was appropriate for the Court to address that preliminary issue, and Mr Mahaffy also consented to that course. Counsel accepted that the petition should be dismissed, if I held against the Deputy Commissioner as to the sufficiency of Mr Cini’s affidavits to establish service of the bankruptcy notice. I ruled that, in the event that I was against Mr Mahaffy on this issue, I would not preclude him from reading his affidavits and cross‑examining Mr Cini. In the particular circumstances in which today’s case has developed, I consider that taking this course was appropriate for the purposes of minimising delays, costs, and inconvenience to all parties.
I accept that I should weigh up the evidence of Mr Cini, assuming the truth of his affidavits and drawing all appropriate inferences from them on an assumption that they are uncontested at this stage of the hearing.
The act of bankruptcy relied upon in the petition depends upon proof of service on 16 September 2010 of the bankruptcy notice, and counsel for the Deputy Commissioner accepts that there is an onus of proof on the Deputy Commissioner to show satisfaction of the requirements in relation to service under reg.16.01(1)(d) of the Bankruptcy Regulations 1996 (Cth). It provides:
16.01Service of documents
(1)Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
…
(d) personally delivered to the person; or …
In effect, this regulation replicates the previous Bankruptcy Rules in relation to service of bankruptcy notices, when they were processes of the bankruptcy court which were served in accordance with its rules. Under Rule 15 of the Bankruptcy Rules, in the absence of an order allowing substituted service under s.309(2) of the Bankruptcy Act 1966 (Cth), personal service of the bankruptcy notice was required to be “effected on the debtor by delivering to the debtor personally a copy of the bankruptcy notice signed and stamped by the Registrar”.
The effect of that requirement was the subject of discussion by Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 in a passage which has been quoted on many subsequent occasions, including when addressing whether personal delivery to the debtor has occurred under the present bankruptcy regulations. His Honour’s discussion at pages 359 and 360 was considered by Beaumont J in a subsequent case involving Mr Ditfort in relation to a similar provision requiring personal service, Ditfort v Temby (1990) 26 FCR 72. The starting point is, as Beaumont J noted at 79:
It will be recalled that r 126 of the Bankruptcy Rules requires service to be effected by delivering the summons to the person personally. There are thus two requirements (1) there must be a “delivery”, that is to say, a physical delivery (cf Re a Debtor (No 441 of 1938) [1939] Ch 251 at 257); and (2) the delivery must be to the person concerned “personally”, that is to say, to that person and not to some other person, so that, in the absence of an order for substituted service, purported service on a person other than the person named in the summons is not valid service: see N J Williams, Civil Procedure — Victoria, Vol 1, p 2475 and the cases there cited.
In his discussion in the earlier case, Gummow J after discussing older authorities about personal service, said 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 r 15 of the Bankruptcy Rules, even though the process has not been left in what Patteson 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 r 15.
As I understand his Honour’s conclusion that something short of the passing over of the bankruptcy notice from the process server to the debtor might satisfy the concept of personal delivery, it requires three elements to be satisfied:
i)there has been an attempt by the process server at personal delivery in the sense of passing over in circumstances where this would have been physically possible, but for the refusal by a debtor to take “actual corporal possession” of the proffered court process;
ii)the process server earlier or in response to the debtor’s refusal has “informed the debtor of the nature of the process”; and
iii)the process server has “left it before or near the debtor so that the debtor has unimpeded and immediate access to the documents”.
In my opinion, his Honour was suggesting that the second and third elements only arise for consideration if the first element has occurred. That is, there has been a conjunction of the process server with the debtor in a physical sense, in which a physical delivery has been rendered impossible only by the conduct of the debtor in refusing to accept a proffered bankruptcy notice. The second and third elements are then directed at establishing that, in practical effect, an immediate delivery has occurred of the process, allowing the debtor to have immediate knowledge of the nature of the process and to read it, so that he was left in an equivalent position to being left in physical possession of the process upon the departure of the process server. This is achieved by the process server conveying a description of the document of the process to the debtor, and placing it in his immediate locality where he can pick it up.
I would not understand his Honour’s language as accepting that these elements can be pushed so as to apply to a situation where, in effect, there has not been anything that might appear to be ‘personal delivery’ to the debtor, but only ‘personal delivery’ to a third person, even if there is a reasonable expectation that the third person would then effect a personal delivery to the debtor.
Later authority has, in my opinion, not established a less demanding approach.
Re Ditfort was considered by Pincus J in Re Hudson; Ex parte G E Crane and Sons Ltd (1990) 25 FCR 318. The circumstances of the service in that case are suggested at 319:
The evidence concerning 23 May 1989 is, in substance, that instead of handing the bankruptcy notice to the debtor, the process server attended at his address and when the debtor refused to admit the process server to the premises, the process server attached the bankruptcy notice to the front door. During this period, that is when the server was attaching the notice, he explained to the debtor (who was behind the closed door) what he was doing and finished by saying, “Are you sure you would not like to come out and accept service?” to which the debtor replied “No”. There seems no doubt that the person who spoke to the process server was the debtor.
His Honour’s judgment did not address whether in the course of the process server’s ‘explanations’ to the debtor the process server informed him of “the nature of the process”. This suggests that satisfaction of the second element under Re Ditfort was not in issue, since otherwise his Honour would have recounted the whole of the conversation and addressed that issue. I therefore do not consider that this case is authority allowing any, as it were, laxity in relation to the second element.
Re Hudson does, however, stand as authority that the requirement of the third element under Re Ditfort, of leaving a document “before or near the debtor so that the debtor had unimpeded and immediate access to the document”, can be satisfied by pushing the document under a closed door to a debtor who is known to be immediately behind a closed door “which he could have opened, and for all one knows did open, to get the document” (see p.320). I would not take its authority any further than that.
In relation to the second element, that of informing the debtor of the nature of the process, Sackville J in Wong v Robinson [1995] FCA 805 considered whether personal service of a creditor’s petition had been effected on a person, when she refused to accept it and it was placed in her presence by the process server. His Honour made a finding, largely it seems from what was not stated in the debtor’s evidence to the Court, that:
I infer that the applicant knew on [the occasion of service] that the document left by the commercial agent was a creditor’s petition.
He then addressed the second element under Re Ditfort:
The circumstances of the present case satisfy the conditions for service specified by Gummow J., except in one respect. This is that, on the evidence, the commercial agent did not say specifically that it was a creditor’s petition that was being served. However, I have found that the applicant not only deliberately moved away in order to avoid taking possession of the documents, but she understood that it was a creditor’s petition that the commercial agent was attempting to serve. The applicant clearly had unimpeded and immediate access to the documents and the only reason she did not take physical possession of them was her desire to contend that she had not been properly served.
I would not understand Sackville J’s judgment as diminishing the requirement in substance that the debtor must be informed at the time of the personal service as to the general nature of the particular court process, by reason of some prior or contemporaneous communication which has conveyed to the debtor the identity or nature of the particular process being served.
There is authority suggesting that a more flexible application of Gummow J’s judgment might be possible. I was referred by counsel for the Deputy Commissioner to Lawindi, in the matter of Elkateb v Elkateb [2001] FCA 1527, (2001) 187 ALR 479. In that case, Stone J was not addressing a rule or regulation concerning service of a bankruptcy notice in the same terms as the present bankruptcy regulation. Her Honour was considering whether due service of a creditor’s petition could be deemed to have occurred by reason of a dispensing rule which was applicable in that case and is not available in the present case, being O.7 r.2(2) of the Federal Court Rules (Cth) which says:
If a person refuses to accept service of a document, personal service may be effected on him by putting the document down in his presence and telling him the nature of it.
Stone J cited authority, which in her Honour’s opinion produced the result that “the rule is not very demanding”. That indeed may be the effect of the authorities her Honour cited, but her Honour was dealing with personal service in relation to documents initiating court proceedings, where requirements of natural justice in relation to the subsequent proceedings will govern any flexibility in their application.
The context of personal service of a bankruptcy notice is different. Many authorities including Re Ditfort have emphasised that requirements as to personal service of bankruptcy notices should be approached strictly. Recently in de Robillard v Carver (2007) 159 FCR 38, Buchanan J, with whom Moore and Conti JJ agreed, said at [67]:
Although the introduction of reg 16.01 has removed the need for personal or substituted service, a strict approach to satisfaction of the elements of service remains appropriate.
Counsel for the Deputy Commissioner accepted that a line of authorities, including de Robillard v Carver, have followed this approach and have held that it cannot be relaxed by application of s.306 of the Bankruptcy Act.
I am therefore not persuaded that Elkateb is directly applicable to the present issue. However, assuming that it should be followed when considering the second element under Re Ditfort in the present situation, I do not consider it assists the Deputy Commissioner. In that case, there was conflicting evidence whether the process server told the debtor that the document left in the debtor’s lap or on the floor in his presence was a creditor’s petition (see [10]). Stone J appears to have assumed the debtor’s version, which denied that there was an oral statement as to the nature of the document. However, she was satisfied that there was a sufficient ‘telling’ of the nature of the document “if the ‘nature’ of the document is clear on its face and the document is not placed in an envelope or otherwise concealed”. She said: “one of the documents served clearly bore the heading “CREDITOR’S PETITON” and identified “MOHAMED SAFWAT ELKATEB” as respondent” (see [13]). This suggests that the second element might be satisfied if the process server has placed the bankruptcy notice face up in the presence of a debtor, in circumstances where it was not covered, and where its nature and relevance to the debtor is readily apparent from the visible top page.
However, informing myself on the application of Bankruptcy reg.16.01(1)(d) in accordance with the above authorities, in my opinion, none of the three elements in Re Ditfort allowing satisfaction of personal delivery are to be found in the circumstances deposed to by Mr Cini in his affidavits in the present case. I am not satisfied that this occurred on any meaning of “personally delivered to the person”.
On his evidence, there was no physical meeting or conjunction of Mr Mahaffy and Mr Cini, in which Mr Cini attempted to hand over the bankruptcy notice to Mr Mahaffy. At best, Mr Cini’s affidavit deposes to being aware that Mr Mahaffy was located in the same premises where he met Mr Mahaffy’s mother at the front door. However, his affidavit does not establish nor allow an inference that the subsequent communications between the process server and the “elderly woman” occurred in circumstances where it was visible or audible to the debtor or otherwise in his immediate proximity. The attempted delivery was not to Mr Mahaffy personally.

Indeed, Mr Cini’s affidavits do not establish the location of Mr Mahaffy at the time of attempted delivery to his mother. They might raise the possibility that Mr Mahaffy had remained in the room in which he was seen through the window when Mr Cini approached the house, but they are equally open to the possibility that Mr Mahaffy had departed out the back door when the elderly woman came to the front door. In saying that, I am not implying that this is Mr Mahaffy’s case. His foreshadowed case is that he was not in the house at any relevant time on that day.
In my opinion, Mr Cini’s affidavits do not show that Mr Mahaffy was “refusing to take actual corporal possession of the process”, except in the sense that he might have been making it difficult for any approach to be made by a process server where corporal possession could be delivered. However, this situation is no different than where a debtor makes himself or herself unavailable to process servers hoping to effect personal delivery in a whole range of circumstances. The answer to such circumstances is, in my opinion, the following of procedures which allow substituted service, not the application of Re Ditfort beyond any ordinary concept of ‘personally delivered’.
In relation to the second element under Re Ditfort, Mr Cini’s affidavits do not, in my opinion, reveal any information being given by the process server to Mr Mahaffy, as distinct from the elderly woman, as to the “nature of the process”. I also am not satisfied that the elderly woman was informed of this. Even assuming that when he said to her: “I am leaving this paper work here for him at your feet in full view”, the words “bankruptcy notice” and the identity of the debtor were clearly visible on the face of the documents, this cannot amount to informing Mr Mahaffy through a visual demonstration of the nature of the process which was being delivered.
Finally, in relation to the third element, the events recounted by Mr Cini do not, in my opinion, satisfy the requirement that there be an immediate leaving of the document in the physical presence of Mr Mahaffy, whether or not that presence was only a gap under a door. As I have noted, Mr Cini’s affidavit is as much open to the inference that Mr Mahaffy was nowhere in the vicinity of his mother’s front door at the time that the paperwork was placed at the feet of his mother.
I am therefore satisfied that the affidavits of service which are relied upon by the Deputy Commissioner to establish the act of bankruptcy in the present case cannot establish service of the bankruptcy notice on the day alleged pursuant to reg.16.01(1)(d). No other mode of acceptable service of the bankruptcy notice is relied upon, so that an essential element of the petition therefore cannot be proved on the evidence relied upon by the Deputy Commissioner.
As the Deputy Commissioner accepts, it is appropriate upon that finding to dismiss the petition.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Smith FM

Date: 8 June 2011