Mulhern v Bank of Queensland

[2012] FMCA 1124

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MULHERN v BANK OF QUEENSLAND [2012] FMCA 1124

BANKRUPTCY – Substituted service – service of bankruptcy notice – whether service was validly effected – whether service was beyond the terms of the order – further assessment of debtor’s case required – further material required – application adjourned.

PRACTICE & PROCEDURE – Service – service outside Commonwealth – United States – service via post – service via email – whether service was validly effected – whether service was beyond the terms of the order – further material required – application adjourned.

Bankruptcy Act 1966 (Cth), ss.52, 106, 153B, 306
Evidence Act 1995 (Cth), s.75
Federal Magistrates Court Rules 2001 (Cth), regs.1.06, 6.03, 6.06, 6.12, 16.05

Grice v Grice [1930] SRQ 261
Gurtner v Circuit [1968] 2 QB 587
Rafaraci v Pearce & Heers [2003] FCA 1307
Sheahan v Joye [1995] FCA 1272
Surfers Paradise International Convention Centre Pty Ltd v National Mutual Life Association of Australasia Limited [1984] 2 Qd R 447
Watt v Barnett [1877-78] 3 QB 183
Young v MacDonald [1940] NZLR 360

Applicant: JACQUELINE PATRICIA MULHERN

Respondent: BANK OF QUEENSLAND

File Number: BRG 959 of 2012

Judgment of: Burnett FM

Hearing date: 7 November 2012

Date of Last Submission: 7 November 2012

Delivered at: Brisbane

Delivered on: 9 November 2012

REPRESENTATION

Counsel for the Applicant: Mr S. Williams

Solicitors for the Applicant: Michael Smith Legal

Counsel for the Respondent:

Solicitors for the Respondent: Dibbs Barker Lawyers

ORDERS

1. That the debtor file any further material in this application on or before 4:00pm on 30 November 2012.

2. That the matter be adjourned for further hearing at 10:00am on 4December 2012.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 959 of 2012

JACQUELINE PATRICIA MULHERN

Applicant

And

BANK OF QUEENSLAND

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

(As corrected)

Introduction

1. On 30 August 2012 the applicant was made the subject of a sequestration order issued by the Registrar. By application filed 30 October she now seeks to have that order annulled pursuant to s.153B of the Bankruptcy Act 1966 (Cth).

Background Facts

1. On 2 February 2012 an order was made in the Supreme Court of Queensland directing that the debtor pay costs assessed following a court order made on 27 April 2011.  The costs were assessed at $24,181.60, and the Registrar entered judgment for those costs on 2 February 2012.

2. On 14 March 2012, a bankruptcy notice was issued upon application of the creditor. It claimed a debt in the sum of $24,400.22, that figure being composed of the original judgment debt of $24,181.60 and interest of $218.62.  The debtor resides outside Australia.  Accordingly, an order was required to permit service outside Australia of the bankruptcy notice.  The Registrar made such an order on 11 May 2012.  The creditor caused the notice to be served in accordance with the Registrar’s order.  The debtor did not comply with the notice and therefore committed an act of bankruptcy.

3. On 10 July 2012, a creditor’s petition issued against the debtor.  It was initially returnable on 16 August 2012.  In the meantime, the creditor made an application for leave to serve the creditor’s petition outside Australia.  An order was made permitting service outside Australia by this Court on 2 August 2012.  In particular, it provided by order 2 that:

   “…

   2. Creditor’s petition No. BRG: 621 of 2012 is to be served upon the respondent as follows:

   (a)     by pre-paid post addressed to the respondent at 12 Brittany Lane, New Rochelle, New York 10805, United States of America; 

   (b)     by forwarding an electronic copy of the bankruptcy notice to the following email address:  [email protected].

   …”

4. On 9 July 2012, the creditor caused the creditor’s petition to be served in the manner directed by the order.  In addition to purporting to serve the creditor’s petition, the creditor, by its solicitor’s affidavit, deposed to enclosing with the creditor’s petition the additional material that would commonly be expected in an application for sequestration.  Service was reported to be effected by both forwarding those documents by prepaid post and also by forwarding those documents electronically.  In that regard, I note that the order itself refers to electronic forwarding of the bankruptcy notice.  Plainly, that order is in error with the submitted draft not according with the relief sought and ought be varied to reflect the intention of the court.[1]

   [1] See Federal Magistrates Court Rules 2001 (Cth) reg.16.05(2)(e). I note that no point was taken by either party of this obvious error and both parties proceeded upon the basis that the creditor’s petition was permitted to be served outside Australia by this order.

5. Prima facie, the date for calculating further events for the purpose of the Federal Magistrates Court Rules was 9 August 2012.  However, in an affidavit filed by the debtor’s solicitor, he deposed at paragraph 5:

   “I am informed by the Applicant & verily believe:

   (a)     she has not resided at 12 Brittany Lane New Rochelle USA since May 2012, having relocated to Northern Ireland to be cared for by family whilst receiving medical treatment & she continues to reside in Northern Ireland.

   (b)     she did not receive any documents sent to her by post in the USA or to the email address referred to in the Order of 2 August 2012 or associated with the Creditors Petition in any way.

   (c) she first became aware of the Sequestration Order when a bank account held by her in Australia was frozen & she made enquiries of her bank.

   (d)     the Sequestration Order was based on a costs order obtained in the Supreme Court of Queensland for $24,000. The proceedings to which this relates, were not served properly & in accordance with USA Law and Rule 129 of the Uniform Civil Procedure Rules.”

6. I note that there was no objection to the hearsay form of this evidence and, accordingly, I am prepared to act upon it.[2]  These matters are confirmed in part by the deposition in the creditor’s solicitor’s affidavit that, upon forwarding the creditor’s petition and other material to the debtor by email, a reply transmission was received on 9 August 2012 that the email could not be delivered as the mailbox “temporarily disabled.”[3] 

   [2] See s.75 Evidence Act 1995 (Cth).

   [3] Affidavit of Louise Jean Secomb filed 29 August 2012 in application BRG621/2012, Annexure J.

7. The date upon which the debtor’s bank account was first sought to be accessed by her and, consequently, her discovery that access to funds in it had been frozen, was not particularised. I assume this date to be some time after 30 August 2012 – that is, after the date of the sequestration order.

8. At the return of the creditor’s petition on 15 August the matter was adjourned to 30 August. On that occasion there was no appearance for the debtor, and the sequestration order was made unopposed. The debtor, now having become aware of the order, seeks to have it set aside pursuant to s.153B of the Bankruptcy Act.

Grounds of Application

1. The grounds advanced in support of the application are:

   
   
   

   a)That the orders did not permit service of material other than the creditor’s petition by post. Accordingly, the application was determined on material not formally served;

   b)That service by post had not been properly effected at the time that the sequestration order was made; and

   c)That service was not, in fact, efficacious as the creditor’s petition and material did not come to the attention of the debtor. 

2. At the outset I think it is appropriate to deal with the issue of substituted service and the bearing that had upon the debtor’s non-awareness of service, as that matter bears upon matters that follow the purported service. The evidence demonstrates that the creditor’s petition and material did not come to the attention of the debtor until after the sequestration order was made.  However, that matter is not relevant.  It has long been accepted that the effect of an order for substituted service is that compliance with its terms will result in efficacious service, even though notice of the proceeding did not, in fact, reach the person to be so served.[4]

   [4] See generally Watt v Barnett [1877-78] 3 QB 183.

3. However, that is not the end of it. In Watt v Barnett, Cockburn CJ stated, commencing at page 184, when considering a similar issue:

   “… The question therefore arises whether an order under Order IX., Rule 2, for substituted service is final and conclusive, so that, after the proceedings have gone to judgment, it is not competent for the defendant to come before the Court and, on the ground that substituted service has failed, apply for leave to appear and defend the action …”

4. At page 185, his Honour continued:

   “… Now, in the first place, it cannot, I think, be said that the judgment was signed irregularly, inasmuch as the service was in accordance with the order of the Court made under Order IX., Rule 2; but, on the other hand, I think the legislature did not intend that the order for substituted service should be final and conclusive on the defendant, when it can be shewn that the substituted service failed and the proceedings were never brought to the knowledge of the defendant. It is the essential foundation of the administration of justice that a person, against whom an action or other proceeding is brought, should have notice of the proceedings before he is concluded, and therefore I think that, when it is shewn to the Court that the substituted service has failed and the defendant has had no such notice, it is competent to the Court to enable the defendant to come in and defend the action, as he would have been enabled to do if the substituted service had been effectual. At the same time I agree that the matter is one on which the Court ought to exercise its discretion.  It is not because the substituted service has failed and never came to the knowledge of the defendant that the Court is absolutely bound to set the proceedings aside, for it may be, that though the action was not brought to the defendant’s knowledge through the substituted service, yet it has come to his knowledge in some other way. If he knew of the action and had an opportunity of coming in, but instead of doing so he allowed the proceedings to go on and took his chance of the other defendants defeating the plaintiff, then I think we ought refuse to set aside the judgment, which is regular by virtue of the order for substituted service, and not to allow the defendant to reopen the litigation. All I hold is that the order for substituted service is not finally binding and conclusive, if the Court are satisfied that through that order injustice will be done if the defendant is not let in to defend, he never having had any knowledge of the action …”

5. Mellor J agreed with the Chief Justice.  However, in that case his Honour continued then to consider the merits of the judgment debtor’s claim.  He continued:

   “… we are not bound to set aside a judgment which we may think ought in the instance of justice to stand …”

6. In that case, the judgment was set aside and leave to defend was allowed, but only upon the payment of security. That authority has been followed in New Zealand[5] and cited with approval in Australia.[6]  Similar approaches have been adopted in Grice v Grice [1930] SRQ 261 at 267, and in Gurtner v Circuit [1968] 2 QB 587 at 596 and 605.

   [5] See Young v MacDonald [1940] NZLR 360.

   [6] See Surfers Paradise International Convention Centre Pty Ltd v National Mutual Life Association of Australasia Limited [1984] 2 Qd R 447 at 454.

7. In the time available I have not been able to locate any Commonwealth authority applying those principles, although a flavour of the principle appears evident in the decision of Sheahan v Joye.[7] The existence of s.153B and reg.16.05(2)(a) acknowledge the broad power of the court to deal with such circumstances, provided, of course, that the power is exercised judicially.

   [7] [1995] FCA 1272.

8. Turning then to the debtor’s three grounds, first, that service was not validly effected.  This perhaps is misstated by the debtor.  There was no question that service of the creditor’s petition followed precisely the terms of the order.  It cannot be said, in those circumstances, that it was not validly effected.  I think the real issue which the debtor seeks to agitate is that she had no notice of the process by which substituted service was effected.  To that end, the authority principally proffered in support of her submissions, Rafaraci v Pearce & Heers,[8] is in my view distinguishable.

   [8] [2003] FCA 1307.

9. In that case there was an issue about the validity of service. In fact, after hearing evidence on the point, the court found that service had not been effected in respect of not only the creditor’s petition, but also the bankruptcy notice and the judgment at first instance. That is an entirely different situation to the situation being considered now.  In that case, at [24], his Honour observed:

   “… The Bankruptcy Notice in this case is founded on a default judgment.  If it is proved or admitted that the originating proceedings were not served, the judgment must generally be treated as invalid, and any enforcement proceedings as wrongly based.  If it can be shown that a default judgment founding the Bankruptcy Notice was entered, although necessary process was not served, the Court should not in the exercise of its discretion make a Sequestration Order.  If an order is made without proper service it should be annulled …”

10. I have noted that the remarks are based on entirely differing facts to those here.  I see no difficulty with anything his Honour said in that case as it applies to this case, for here there has been efficacious service.  The fact that the debtor now says that the ordered manner of service did not bring it to her attention takes me back to the situation that I have earlier discussed following the approach of the court in Watt v Barnett. 

Ground 2

1. The second ground was that service was beyond the terms of the order.  The complaint here is that the creditor’s petition was the only document the subject of the order for substituted service and for service outside the jurisdiction.  A creditor’s petition is an application starting a proceeding. It must be served by hand, except if the court otherwise directs, as it did here.[9] The supporting documents served concurrently with it were also required to be served.[10] However, the court may, in the interests of justice, dispense with the compliance with its rules.[11] Here no question of injustice arises on the dispensation with compliance of reg.6.03(3) insofar as it relates to each of those documents served with the creditor’s petition. 

   [9] See Federal Magistrates Court Rules 2001 (Cth) reg.6.06.

   [10] Ibid., reg.6.03(3).

   [11] Ibid., reg.1.06(1).

2. That is because:

   a)the documents were served concurrently with the creditor’s petition;

   b)had the debtor received the documents, she would have appreciated upon a review of them that they related to the creditor’s petition;

   c)the debtor complains that she did not get them, but, in any event, her alleged prejudice would not be exacerbated by allowing a relaxation of the rules for such service permitting their service with the creditor’s petition; and

   d)the debtor does not claim prejudice with respect to the documents themselves, merely the absence of notice of the creditor’s petition. 

3. Even if leave was required for this service, it is plain that it would have been granted at the time the order was initially made with respect to the creditor’s petition. Accordingly, whilst the manner of service of the supporting documents was irregular, it is an irregularity that I think has not, and will not, cause the debtor substantial injustice and it can be remedied by the court (see s.306 of the Bankruptcy Act). An appropriate order will be made.

Ground 3

1. The third ground was that service not effected at the time of the sequestration order. It was submitted that, by operation of reg. 6.12(b), a document served by airmail post to an address outside Australia is only taken to be served on the 28th day after posting.  Here the documents were posted on 9 August 2012 and the sequestration order was made on 30 August 2012. Accordingly, at the time of the order, the documents were not deemed to have been served.  The argument has some superficial appeal.  I say that because the real argument advanced by the debtor is that she no longer resides at the address to which the documents were posted and, accordingly, on her evidence it would not have mattered whether the documents arrived in the ordinary course of post, as provided by the rules, or at any other time because, irrespective of how they were delivered and how much time was allowed for delivery, the material would never have come to her attention.

2. On a strict analysis, and adopting the same approach to the exercise of the discretion provided by s.306(1) which I have earlier discussed, I accept that the short service complained of here constitutes an irregularity that can be remedied by an order abridging the time for service, and I will so order.

3. However, that does not conclude the matter. Strictly, the application under s.153B requires consideration of the general discretion. As Tamberlin J observed in Rafaraci v Pearce & Heers:

   “[27] … It is well established that, in the exercise of its discretion under s.153B, a Court must first consider whether the Sequestration Order should have been made, and then whether, in light of all the circumstances of the case, the Sequestration Order should be annulled …”

4. Prima facie, here the Registrar acted properly in ordering the sequestration of the debtor, and had I been determining the application on 30 August 2012 I too would have made an order in terms identical to those made by the Registrar. Plainly, the first limb of the rule has not been established, that is that the sequestration order is one that ought to have been made. 

5. However, as Cockburn CJ said in Watt v Barnett at page 185:

   “… Before letting the defendant in to defend we must consider whether he gives us any grounds for thinking that he has a substantial case which he desires to try …”

6. That is to say that there must be an assessment of the debtor’s case on the merits and whether or not, on that basis, the debtor ought be permitted to run that case, and whether a failure to permit her to do so would perpetrate an injustice upon that right.

7. Relevantly for these purposes, s.52 Bankruptcy Act provides the only remedy available to the debtor. Section 52(2) provides that a court may dismiss the petition:

   “…

   (2)  If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

   (a)  that [the debtor] is able to pay his or her debts; or

   (b)  that for other sufficient cause a sequestration order ought not to be made;

   it may dismiss the petition.

   …”

8. The debtor has not placed any material before the court addressing any possible s.52(2) matters. The creditor effectively says that the debtor chose to run her case a certain way and is now bound by her decision.

9. I think that approach is too harsh in this instance. The uncontested evidence is that the debtor first had notice of the sequestration order after it was granted. She is overseas and she has health problems. Sequestration is a significant matter and it extends beyond matters concerning the private legal rights of the parties. Sequestration trespasses significantly into the domain of public law. The debtor should not be denied that right because of a tactical decision made by her advisers without first being expressly permitted an opportunity to address any s.52(2) matters or other relevant matters as to the merits that she might wish to advance.

1. Since she remains a bankrupt until this application is disposed of, potentially in her favour, that circumstance should provide sufficient incentive for her to act upon my proposed orders.  In the meantime, the trustee should adopt a minimalist approach to the administration of her affairs in the event that she succeeds in the application. In reaching this view, I should note that I have taken into consideration the other discretionary grounds advanced by the creditor, in particular the debtor’s refusal to cooperate with the trustee. Having regard to all of the circumstances of the case, I think it is appropriate that this application be adjourned for further hearing subject to directions, which I will make now, requiring the debtor to file material in order to see whether or not there is, indeed, a merits issue to be tried. 

2. I will direct that the debtor file any further material in this application on or before 4.00 pm on 30 November 2012, and I will adjourn the application for further hearing to 10.00am on 4 December 2012. I hope to be able to dispose of the application on that occasion.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date:  27 November 2012

CORRECTIONS

1. Paragraph 26 line 4 – insert “not” after the words “Plainly, the first limb of the rule has”